My post is coming quite late, but I figured I’d send it in anyways. I want to piggy-back of the ideas of Spencer and Jesse and think more about Malthus. Reading his writing was a bit sickening in how easily he promotes the complete abandonment of the poor because in most cases, it isn’t their fault at all that they’re poor. I think a lot of his debate, as well as looking into the future, is about looking to the past as well. Because my grandfather was able to pull himself out of poverty and amass wealth, I have always lived a comfortable life. I have probably done much less in my life to work to sustain myself than most people in poverty. According to Malthus though, I deserve to have what I do because of my ancestors, and they don’t because of theirs. Should we really be held accountable for the status that we’re born into?

There is definitely a “tragedy of the commons” when it comes to child birth. Just this time, instead of talking about how many sheep we’re going to have graze on the pasture, the question is how many children you have living in the world. If everyone had 2.1 (I think it is, since some children won’t grow up to have kids) kids, we’d be at sustainable population levels and everything would continue at the current level of production.

I can’t really believe I’m saying this, but I think that that cap is actually fair. Everyone would get to have 2 kids (a much better proposition than denying the poor any). But I suppose it just might be that someone’s third child would have saved the world and we’ll never know his or her insights because we didn’t allow his or her parents to reproduce a third time.

Although I don’t think we’ll get to a child cap in the near future (China’s authoritarian laws wouldn’t fly in most places), I think that we’re going to need something, at least eventually. I do believe that there is a strict carrying capacity of the Earth. At some point, we could figure out how to cover the entire planet with agriculture, but that would still only create a limited number of food. I also don’t think we should keep pressing the limits until we get to the final, unpassable point. That would be chaos.

]]>Comment on Course Discussion by Andrew Piccirillohttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-2/#comment-731
Mon, 07 Dec 2009 23:32:35 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-731Logan brought up the climategate controversy which I have (of course!) been following very closely. As usual, there have been a range of media interpretations, most of them incorrect or biased. Some just say that the CRU was hacked, that it was illegal, and do not mention the shocking contents. Of course this ignores the real issue, and besides it’s likely the files are FOIA actionable and that the hacker would get whistleblower status. Global warming deniers and misled media outlets have taken quotes out of context trying to disprove GW. Quotes such as “completing Mike’s [Michael Mann the hockey stick graph creator seen in Gore’s movie] nature trick to hide the decline” are used to try and assert that the warming is not real. This quote refers to replacing tree-ring proxy data for temperature with instrumental temperature data after 1960 because the proxy data showed a decline. The divergence between tree ring proxy data and the instrumental record has been openly discussed in science journals. However, the hockey stick graph used in Gore’s movie and other publications deletes this divergence. So this quote doesn’t really change any of the science or knowledge about the historical temperature record, although it does show that scientists intentionally presented data to the public in a way that would best make their point.

There are lots of quotes about working to suppress the work of skeptics such as Richard Lindzen at MIT. There are quotes celebrating the death of other skeptics. The emails give a general impression that these are biased people engaged in what sounds like tribal warfare rather than the pursuit of knowledge. They celebrate a well known skeptic, Roger Pielke Sr, resigning from his position on Chapter 6 of the IPCC 2001 report in protest because his opinion was being ignored and overruled. The people engaged in these emails are famous climatologists, like Michael Mann, Phil Jones, Keith Briffa, and James Hansen, which would be standard reading for any class on climate change.

One of the most interesting quotes is Dr. Trenberth saying “We cannot account for the current lack of warming and it is a travesty that we can’t.” This is one of the points I brought up in our discussion, the lack of warming for the past 12 years. This has not been acknowledged as anything unusual by most climatologists, and a NYT article published 6 months based on a peer-reviewed journal article argued that the current lack of warming is perfectly expected. So it was interesting to see climatologists discussing the lack of warming behind closed doors.

If we can’t account for the earth’s energy balance in the short term, how can we possibly expect to do so in the long term?

One of the biggest personal problems in challenging AGW orthodoxy for me has been the fact the majority of authorities on the subjects, including the vast majority of scientists and research institutions, endorse the IPCC position. These emails, in revealing personal biases and animosity, suppression of other viewpoints, and distortion of data, went a long ways in explaining how the majority of the scientific community could be mistaken.

]]>Comment on Course Discussion by Fernando Aragonhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-2/#comment-721
Sun, 06 Dec 2009 22:16:52 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-721I was particularly interested in Rodrik’s analysis of globalization> According to him globalization and free trade won’t serve development goals unless there is some kind of government intervention to redress its perils and to protect those who are not prepared to compete in the international market. I think Rodrik’s lucid vision is inspiring because it serves to reminds us again about the dangers of assuming development work in only one direction: liberalization. The Washington Consensus is dangerous because it presupposes economic rowth will be distributed evenly in society, when in fact it is only those who are capable of ripping the economic opportunities provided by the integration of markets who will favor globalization. Although the story for Europe is quite different, since they have been historically devoted to the strengthening of the welfare state and to fight inequality as one of the fundamental goals of the state, the situation is much more complex for less developed economies. In Latin America, for example, we were practically surprised by the liberalization of markets, and we were not prepared, neither institutionally nor socially to face and benefit globalization. We passed from an import substitution model in the 80s to drastic liberal reforms, that yes, have allowed as to increase our growth rate, but that have not had a positive impact of development indexes. Globalization will only be beneficial for those who already posses the skills to actively participate in the global market (i.e. education, technology, language proficiency). For those who do not posses these skills, globalization will only provide the possibility of an “industrial job” that as Krugman says, will provide income, but at the expense of the physical and mental health of the workers. I can only speak about the Peruvian experience, but I can’t really see how globalization will bring development to our country, since we do not have a strong welfare state, neither strong industries to spur growth and reinvest profits in our country—which is a necessary condition for development. Most MNCs in Peru are related to the mining sector, and thus globalization for us basically means subsisting thanks to our natural resources. Can this be considered sustainable development? Certainly not. Globalization requires our economy to move from the industrial sector to the tertiary sector, which is precisely what the most globalized economies have done (i.e. Belgium, Austria). But without the necessary government spending to provide general education and opportunities to out citizens, and to empower them to become active members of the economy, I don’t think globalization can solve our woes. Without either a strong industrial or tertiary sector, I believe globalization will be another dead end for us.
]]>Comment on Course Discussion by Sam Michelmanhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-2/#comment-711
Fri, 04 Dec 2009 18:51:29 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-711Sorry this is a little late guys…but I had another question for you all with regards to climate change. I had to read a paper for another class by Weitzman, where he challenges the findings of the Stern Report on climate change that we discussed briefly in class. Stern emphasizes an extraordinarily low discount rate…perhaps too low for Weitzman. There’s absolutely no doubt that the problems that could arise from climate change are incredibly real, and here’s how Weitzman assesses the Stern report:
He contends that a) the growth rate of our consumption as a species is incredibly uncertain and that global temperature changes can be both instantaneous and its hard for us to figure out how big they’re going to be. These two factors contribute to some change of catastrophic outcomes if we choose to do nothing on climate change. Weitzman ultimately finds that the real likelihood of catastrophe is small so why are we using this low fixed interest rate? Essentially, we’re paying a really high premium on an insurance policy that has a low likelihood of being used…climate change is real, but the direct costs of catastrophe are small. I tend to disagree with this kind of reasoning and see it as more in line with the Lomborg view of the world–that we are spending way too many resources and political capital on climate change that could be used for other more “immediate” issues. An interesting thought thoughhttp://www.aeaweb.org/articles.php?doi=10.1257/jel.45.3.703
In case anyone is interested:
]]>Comment on Course Discussion by Nat Nelsonhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-2/#comment-701
Fri, 04 Dec 2009 16:25:25 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-701Alhaji, you write like Mark Twain and you’ve sparked a good discussion on Malthus.

For obvious reasons, it’s difficult to talk about health care reform from a Malthusian perspective. Legislation to alter the health care system, which inevitably includes discussion of mortality, evokes concerns of rationing and “death panels” that are an anathema to those who are profoundly uncomfortable with the concept of death in the first place. (The Obama Administration has worked hard to clarify that the proposed legislation would merely provide an option for end of life consultation – covering important personal questions like whether terminal patients want mind-dulling medications administered to control pain. The measure is intended to ensure quality [more humane] care by compensating doctors for time spent providing therapeutic counsel, rather than perpetuating a system which disproportionately rewards performance of procedures.) The public outcry against a reform that happens to mention end of life considerations in the same reports as economic and political policies illustrates the impracticality of infusing Malthusian ideas into a debate around health care legislation.

Despite the unworkable role of Malthus in the health care debate, climate change, poverty, homelessness, and hunger remain salient realities of the modern world that seem to hint that the theologian was on to something. Even if there is no fixed carrying capacity of the world, as resources are stretched thinly, quality of life falls. It is evident that something must be done to address the growing distress of the cramped and hungry. Restraining population growth is obvious solution, but dictating life sentences or arbitrating life choices is an untenable (or at least unwise) way of doing so. Education and infrastructure seem to provide the best means of reigning in burgeoning populations around the world. Another or an additional “solution” (though temporary) is of course to find new means of allocating resources. Big Food corporations, such as Monsanto, are perhaps poised to achieve this by replicating the Green Revolution.

“The Economist” printed an interesting briefing on the Big Food giant a couple of weeks ago (I’d give the link, but the site is down). The corporation has no shortage of critics. Its vehement protection of intellectual property rights has disturbed popular conscience: independent farmers whose livelihood has been dismantled in courtrooms because they held onto a bag of seed longer than they were supposed to provide compelling victims of corporate glut and callousness (not unwarranted). Moreover, the American Antitrust Institute recently reported that the horizontal and vertical integration (that’s worth ten points, at least…) instrumental to Monsanto’s economic strategy has stifled, not promoted, innovation. The environmental ramifications of herbicides and the somewhat unsettling notion of crop genetic modification have also garnered opponents as well. Robert Kenner, the man behind the camera of “Food, Inc.” (which sharply rebukes Monsanto and endorses a McKibben-esque Deep Economy) repudiates the notion that feeding the poorest of the world mass produced, nutritionally valueless food that will make them more prone to sickness is a viable means of sustaining our world population.

Food crises around the world have in some ways succeeded in reorienting popular opinion that an extension of the Green Revolution (the “Gene Revolution”) may be the world’s best method of combating widespread starvation. GM crops have been shown to improve yields by adjusting for environmental or land based factors of growth and by enhancing crop resistance to pests and disease. Their image as the curative response to global malnutrition has, in some ways, been fostered by Monsanto’s approach to Africa. Learning from what it purports to be the fallible policies of the pharmaceutical industry, Monsanto has freely donated many of its innovations to developing countries there, touting the ideals of global unity. (Its products, one should note, are often specifically tailored for particular crops and environments and so seed used in Africa is unlikely to end up back in the US as competition for the company’s domestic business – Monsanto is still a vigilant guardian of its intellectual property at home). The world is beginning to rely on the innovations of Big Food: “Around 90% of the world’s 12m farmers with at least a hectare planted with GM seed are smallholders in developing countries.” The obvious question is whether these scientific solutions are sufficient to long address the systemic problems of excessive population. Many are unconvinced.

]]>Comment on Course Discussion by Jesse Gubbhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-2/#comment-691
Fri, 04 Dec 2009 16:17:52 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-691Picking up on your point Spencer, I too have been fascinated by Malthus, most simply because he seems a rare example of a thinker with an incredibly low (or negative) discount rate. Jefferson worried about passing debt on to future generations. Environmentalists worry about passing degradation and climate change on to future generations. Malthus concerns himself so much with the future, however, that he is willing to categorically deny assistance to the poor, promoting suffering today for happiness tomorrow.

In our discussions, I think Malthus is significant because he urges us to consider limits. There may be absolute limits to growth or limits to the utility of growth. Usually, growth is considered good, particularly in economics. This discourse is pervasive. Even in the context of current environmental problems like climate change and resource scarcity, where Malthusian arguments would find the most traction, the discussion centers on sustainable development, which posits that continued growth, both now and in the future, is possible. Is this possible? The prescription of meeting needs now while preserving the ability of future generations to meet their own needs is vague. It leaves the determination of the discount rate open.

That Malthusians have failed to realize their dire predictions for the world does not suggest that Malthus was wrong, that the world is without limits. Looking at non-human populations and ecosystems, there is clear evidence for carrying capacities. Humans have pushed back (in the case of food) or avoided (possibly in the case of coal) limits, but not through Malthusian politics, but through growth. We brought this up in discussion. Those concerned with limits should not disregard the benefits of growth, which brings efficiency through economies of scale and innovation.

We need to consider the existence of limits, while realizing the benefits of growth in addressing them. Malthus looses his effectiveness — and, importantly, political support — by discussing only limits. A policy of stagnation does not confront limits but merely punts them farther into the future, a method that should be at odds with Malthus’s concern for future generations. Further, it promises moderate gains for future generations with losses at present. What are the prospects of a Climate Change bill financed through the elimination of welfare, medicaid, medicare, social security, or the killing of the first born?

In realizing the positive possibilities of growth for confronting limits, the vague message of sustainable development does not seem sufficient. We need to create economic measures for the cost of reaching these limits (or, as is usually the case, if limits are uncertain then economic measures to assess the risk). The problem with growth to date is not that it is inherently bad, but that economic progress does not account for all its effects. Again though, the economics seem simple. The politics are much harder.

]]>Comment on Course Discussion by Loganhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-2/#comment-681
Fri, 04 Dec 2009 07:00:27 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-681The story is a little dated at this point, but I was curious as to what you guys thought about the whole climate gate story about a week ago. In the first discussion section a couple weeks ago we talked about reasons to be skeptical of global warming and this story seems like a really nice point for Andrew’s side. Jon Stewart covered it on the Daily Show:http://www.thedailyshow.com/watch/tue-december-1-2009/scientists-hide-global-warming-data
But basically hacked emails were released from a British climate research group, some of which discussed how to distort data on global warming. This relates to our discussion of data in An Inconvenient Truth, but I think the more interesting side of this issue is the lack of media coverage we’ve seen on this story. Some major news sources didn’t even report it; others referred to it in passing as “embarrassing” or defended the researchers. To me this just seems like an extension of the problem, this exaggeration of global warming claims and burying any evidence to the contrary. If emails were released from the other side (scientists/politicians discussing how to hide global warming) wouldn’t that be front page news?
]]>Comment on Course Discussion by Spencer Wrighthttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-2/#comment-671
Fri, 04 Dec 2009 06:29:29 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-671I’ve always been really interested in Malthus. I have no idea if I agree or disagree, but I think the debate is always fascinating.

I think I come down sort of in the middle (which I usually hate). I think that our population is expanding pretty significantly and could exceed the “carrying capacity” of the earth, whether that is in terms of food, resources, or the environment. So I think it is necessary to perhaps create incentives for people to have fewer kids, but these incentives need to be positive incentives, such as a tax break or something like that, and not a limit on children or age (which gets into the whole rights debate).

The reason I think a positive check will be effective enough is that I don’t really see the doomsday scenarios playing out. There are still checks on population growth around the world. Europe and Japan are simply too old and are both facing negative growth rates. Affluent countries generally have low, stable growth rates. And then some places are even facing the possibility of population “crunches.” China’s one child policy has created incentives for parents to keep only male babies, and there simply aren’t enough females to go around. Combine that with the one child policy, and China’s growth looks like it could stagnate or even become negative in the nearly future as this generation competes for females (it could get more hostile than the Bunker). I can’t find the citation, but I read an article that says Africa also looks like it could be in for a population crunch because of the rapid spread of Aids, TB, malaria, etc.

So, while I do think overpopulation is something that we need to start thinking about seriously, I think contemporary Malthusians too often overlook the factors that go into global growth.

]]>Comment on Course Discussion by Alhaji Jallohhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-2/#comment-661
Fri, 04 Dec 2009 06:24:31 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-661Alex and Will, thanks for your response to my post. I truly appreciate it! And I couldn’t help but respond back.
You see, sometimes I try to take (I don’t know if I succeed) a deconstructive approach in thinking through some of the very tough questions that we are faced with as a people. My approach (generally) is to strategically offer a view, an afrocentric perspective, if you like. And here is the reason why: To provide another perspective that endorses the fact that the problems are much more complicated and thus require well-thought-out solutions.

Now, I don’t want to pretend as if all the plights in Africa are the fault of “the west” Or “others.” In fact, some of the problems in Africa created by Africans are immense and the solutions are far-fetched! It will require multiple posts to exhaust just a handful of these problems and trying to figure out solutions. You all probably have got a glimpse of some of these complications just from reading Sachs etc. Also, you may be shocked to know that there are some Africans today who are longing to go back to colonial days – a clear manifestation of how some Africans are dissatisfied with the status-quo; their governments in particular!…

Now, this may sound naïve, but the reasons why I rarely bring some of these above-mentioned views up is simply because I think (I may be wrong) it is unwise to do so. why? Because:
1. Doing so may discourage any of you brilliant minds who might have an interest in being in a position where you can help Africa.
2. It defeats the purpose of the discussion, which in essence, is to evaluate various arguments and perspectives. One does not have to believe in his/her argument; it can just be another perspective, as was evident in our discussion today.
3. I am in the west. So say if I’m in a room in Africa, full of African intellectuals, with mainly afrocentric views, then I will reason with them using the other approach, Eurocentric, if you like, so as to deconstruct their views (make the discussion more interesting), see things with a much bigger lens and at the same time learn more.

Anyway, I just think that hearing different perspectives might be useful especially to some of us who might be interested in becoming policy makers or theorists. I know very well that many people genuinely put forward theories and policies to address issues affecting society at large, but we also know that these theories could be inadequate despite their relevance.
For instance, I’m presently doing an independent study on regional organizations in Africa, and it’s interesting to note some of my findings…just 2 quick examples:
– Some of the theories on regional integration, such as the neoclassical model, the functionalist model, and the developmental model, are (just on their own) insufficient in an African context. My suggestion is that one needs a combination of all three approaches, or a whole new theory that captures the reality of the African continent.
– A similar criticism of the Theory of Optimum Currency Area…but i do not have time to elaborate on it here…

In a nutshell, I sometimes (not always) try to make compelling arguments from an African perspective not because I necessary believe in everything (that I say) but because I sometimes simply want to learn more. And I want to believe that many of you sometimes (if not always) take similar approach.

So Alex en Will, in case you were wondering whether I was cynical, dogmatic, afrocentric, you name it haha, the answer is No! so yes, Alex, you’re right I was just “suggesting it to make a point” but I am not personally in favor of it being applied. That will of course be cruel right?… Anyway, I like to think of myself as an optimist or pragmatist for lack of a better term. No doubt that there are many problems out there. But I also believe the solutions are out there. Maybe the key to the solutions is TALKING, LISTENING and then LISTENING. I have been lucky enough (blessed with the opportunity) to travel and live in various parts of the world, in different status, exposed to different perspectives, and experience. This has enabled me appreciate the satisfaction that comes from LISTENING. I love listening, although I expect to be heard too 🙂 together we’ll fix the world 🙂

Ok that’s it for now. hmm interesting it says on the corner of my computer 7°C (has dropped from 14°C earlier) — I can’t believe it is Dec 4th and it still hasn’t snowed yet. hmm, is that global warming in action?? 🙂

]]>Comment on Course Discussion by Colin Gibsonhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-2/#comment-651
Fri, 04 Dec 2009 04:58:26 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-651(Prompted by a few words exchanged with Prof. Morrison before discussion). With the spread of corporations from the United States around the world, it becomes easy to forgot that the reason that smokestacks are not belching smog into the air and drainages are not pouring industrial waste into the water in our backyards is because they are doing so somewhere else. Regarding industrial organization, the British East India Company, and the difficulty of ensuring that foreign-operating companies maintain the standards of the United States in regards to environmental safety and worker relations, people around the world are suffering. The world’s worst industrial disaster was the result of an American company (in this case Union Carbide) following unsafe practices in a developing nation out of sight of the United States. The death toll for the Bhopal gas tragedy varies depending on who one asks, but estimates range up to 50,000 dead from both the original exposure and the ensuing harmful effects. The more recent murder of Sun Danyong by Steve Jobs’ agents in China harkens back to the days of the British East India Company, with corporations controlling their own armies. Now, while Apple might not have assassins protecting company secrets (although there is nothing to say that they do not), the suppression of human rights and fundamental freedoms in developing nations by western MNEs is certainly harmful. This topic connects well to another class that I am taking, the Economics of Happiness, in which we have just read Bill McKibben’s book, Deep Economy. In that book, McKibben discusses the tragic effects of western industrial organization on developing states and their populations. It is, as some commentators that we have read say, a new colonialism that is spreading to re-enslave Asia for the whims of the West, with no regard for those nations’ futures. However, due to the anarchic structure of the international system, there is little that can be done to ameliorate this terrible situation. A strong supranational organization would be needed to oversee the practices of MNEs, to keep an eye on their activities no matter how remote a region of the world in which they try to hide. Perhaps a strengthened IMF could perform this role as well as redistributing excess currency reserves. Enough polemic for one night, I think.
]]>Comment on Course Discussion by Will Higginshttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-2/#comment-641
Thu, 03 Dec 2009 20:26:11 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-641This may not be entirely relevant to coursework, but Alhaji’s post got me thinking. I really enjoyed reading the Malthusian proposal to put an age limit on the population, and though I took to be farcical to point out the inhumanity of dealing with such issues in a purely logical manner, you are actually not so far off from some ideas that are gaining acceptance. In health care, what we are beginning to see now – and will continue to see more of in the future as costs continue to rise – is the rationing of medical care, which is exactly what it sounds like. As hospitals run into worsening budget crunches, it becomes increasingly necessary to devote available resources to the places where they will do the most good for the cost. Logically and economically, it doesn’t make sense to treat a 90-year-old with metastasized liver cancer when the projected outcome is an additional year or two of life when that same money elsewhere could be used for preventative care that would actually save more lives and money over the long term. This emerging system is really a form of triage taken to an extreme. The amount of money spent (in the U.S. and abroad) in medicine on care that has a return ratio of less than 1 (expected value created in terms of X dollars per life-year/cost of care) is staggering, and places an enormous strain on economies (there, I at least partially tied this post to something related to the course), and detracts from the total amount of good that could be done given a finite budget. Of course, such solutions, as Alhaji made clear, are morally abhorrent and politically unappealing as a result; no one wants to see Grandma die early because his/her representatives voted to cut off care in cases where society will not recover the costs of treatment. So where does that leave us? Struggling under the burden of providing top-quality care to everyone who needs it while still trying to remain fiscally solvent – in other words, it leaves us in one hell of a mess. Even the European systems, which are generally rated as more inclusive and egalitarian than the American and some other systems, are feeling the strain. With all the talk about universal health care being a panacea, we’ve lost sight of the fact that without some major changes to the way the system operates, health care might be a large part of the next economic crisis, both in the United States and abroad.
Additionally, Alex, I thought you made some really good points in your response to Alhaji’s post, although I’d like to clarify one thing that you said. Countries with aging populations, such as Japan, are supporting their elderly populations right now, but big problems lie ahead. I can’t speak to this problem in other countries, but Japan in particular, with its low birthrate, is approaching the point of unsustainability. Japanese culture has led to the development of a system in which children are often the primary care providers for elderly parents, and as a result, the system of elderly care in hospitals and nursing homes is not as developed as it is elsewhere. For elderly without children available to care for them, many struggle to take care of themselves, as public care facilities are overcrowded and understaffed, and private facilities are in many cases prohibitively expensive. So you are right that things are OK right now, but Japan faces serious challenges down the road.
]]>Comment on Course Discussion by Alex Knighthttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-2/#comment-631
Thu, 03 Dec 2009 13:16:10 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-631In response to Alhaji’s post, I’m not clear as to whether your proposal is real or if you are suggesting it to make a point. Either way, setting an upper age limit and putting those above it to death doesn’t serve the same function as Malthus’s option. Firstly, while people over 90 or 100 may not be the most productive members of society, I highly doubt legislation could be passed that involves murder, albeit utilitarian. Preventing something from ever existing and ending something that is already there are completely different ways of operation. Secondly, eliminating old people from society would not have nearly as large of an effect as limiting births, as people over 90 or 100 are close to their natural death anyway, and thus eliminating them would not do much at all, where as preventing entire life spans could do much more. Furthermore, countries that have significant populations over 90 or 100, such as Japan, are strong enough to support them. Also, if we think of it more on an individual family basis, the more children in a family, the more resources are stretched and the less likely a child is to be brought up in an ideal environment, especially in a low-income or single parent family (speaking in general terms).
]]>Comment on Course Discussion by Chalene Pekhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-2/#comment-621
Sun, 29 Nov 2009 18:15:33 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-621In Week 11’s readings, Stiglitz’s “Odious Rulers, Odious Debts” really struck me as apt in describing current debt problems in many developing countries.
“Iraq needs a fresh start, and the only real way to give it one would be to free the country from what some call its “odious debts”—debts incurred by a regime without political legitimacy, from creditors who should have known better, with the monies often spent to oppress the very people who are then asked to repay the debts.”
Stiglitz concludes his article by recommending that the US commits itself to establishing a framework for addressing debt relief, debt restructuring and odious debts, in which a possible solution would be an international court that can develop and enforce a set of widely agreed-upon principles. This is an opinion shared by many other advocates for debt relief, such as Bono, who agree that creating a sovereign debt workout mechanism would allow cases of state insolvency to be worked out in a fair and transparent manner. Such an institution has the potential to be a much anticipated solution to unsolved debt problems which benefit neither creditors nor debtors.
Yet given the number of things on Obama’s list of things to do, I wonder where this debt relief of developing countries is ranked. On the other hand, there is the issue of debt relief in developed countries to be pondered about too, as evidenced in the most recent debt crisis in Dubai which is putting downward pressure on worldwide stock markets. Closer to home is America’s own debt crisis which some, such as Congressman Ron Paul, believe are making her vulnerable to foreign creditors.
Dani Rodrik mentions the implicit postwar social bargain in advanced industrial countries in which governments provided social insurance and safety nets at home in return for the freedom to adopt freer trade policies. However the past years of increasing globalization has seen this social consensus weaken, because globalization is generating an inequality in bargaining power for employers which allow them to move abroad. Things may seem rosy now, with protectionist trade policies not hindering the majority of globalization flows from taking place. However, Jeffrey Williamson raises a thought-provoking possibility that rising income inequality which was partially responsible for causing a retreat from globalization during the inter-war years, can cause a similar decrease in globalization trends if this inequality problem is allowed to build up.
Grieco and Ikenberry nicely summarize that the scope and sustainability of economic globalization is ultimately dependent on how current governments manage the tensions produced by our present-day economic interactions. Like Krugman, I believe that the government has a strong role to play in mitigating crises and prolonging globalization.
]]>Comment on Course Discussion by Alhajihttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-2/#comment-611
Sun, 22 Nov 2009 19:11:47 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-611Nice posts mates! Sorry guyz, I was meant to post this email that I sent to Prof. Morrison a while ago but I got caught up– so here you go!
You are right professor. According to CIA – The world factbook, Nigeria may after all have a relatively lower % rate of pop. growth in Africa (just about 2% at this time) despite the fact that it is the most populous country in the continent… Nigeria is 60th in the world in terms of population growth compared to Niger (which is 2nd in the world and 1st in Africa with about 3.68%), http://www.indexmundi.com/g/r.aspx?c=ni&v=24https://www.cia.gov/library/publications/the-world-factbook/geos/ni.html
However, I still think that overpopulation (due to birth rate) is not the issue. The issue is urbanization / uneven net migration or uneven distribution of population relative to resources (that are either tapped or untapped). One only has to travel across Africa or Asia to notice that trend. *Nigeria’s net migration is -0.1% and it’s rate of urbanization is about 4%…
So I don’t think “the earth has a limited carrying capacity,” and there is hardly a way of predicting that population has or will exceed (available) resources…I stand to be corrected on this and I’m sure we’ll talk more abt that in discussion… (end of email)

Now, I still don’t buy into the Malthusian theory!!
Look, my mom has 8 kids and I fall in the middle. Imagine if my mom had decided to stop giving birth after her third child. I wouldn’t have been in existence today and would not be contributing to this blog today. And now you expect me to endorse Malthus. Over my dead body!
Anyway, I know this is a normative question but I also think that we have better growth models or should maybe look for better ones other than the simplistic neoclassical (solow) growth model.

Also, the idea that we should leave poor and helpless babies to die from curable disease under the pretext of saving the planet is simply absurd. If we are truly concern about reducing world population, I have a much better idea, and let me know what you think about it. My idea is that we should set an upper age limit (say, 100 yrs or even 90 yrs). And who ever exceeds that age limit should be put to death and his/her wealth confiscated and distributed among the needy. Japan could be an ideal place to start off with (no offense Xue) because I’m pretty sure they’ve got a lot of old folks there ☺ This, in my opinion, is not only economically viable but is also relatively morally justifiable. Why? Well you’ll agree with me that such old folks are not part of the work force; they contribute little, if any, to the general welfare of society. And they probably even contribute more to environmental pollution because they cannot move from one place to the other without some kind of transportation (mind you they’re too old to bike). Moreover, they’ve had enough of their share of worldly life and ought to give room to others. So it’s probably cost effective to eliminate these old folks instead of babies who could become the Obamas or Madelas or Kofi Ananas of tomorrow.
We should leave people to make as much babies as they like. It’s their choice. Having few babies doesn’t necessarily mean that the world will be a better place. What if those 2or 3 babies turn out to be rebels or hooligans who pollute the world as much as 10 others do—maybe that third baby was going to be McKibben or Al Gore. One never knows.

So after reading Andrew’s comments on global warming and the responses left by others, I couldn’t help but relate this discussion to a question posed in one of my classes last year: “Is it everybody’s responsibility to recycle”? Ten students formed a human barometer. Agree on the right, disagree on the right, and somewhere in the middle…obviously in the middle. So 9 out of the ten students stood by the agree sign and one student was by the disagree sign. Some of the students by the agree sign spoke and argued in order to protect the environment everyone should recycle, it should be a collective effort because everyone has a stake in the matter. When the lonesome guy on the right was given his turn to speak he argued that you cannot expect everyone to recycle because there are so many people in this world who have more important things to worry about. A single mother in an urban city working 2 jobs to support her kids is not going to care about whether the item she is throwing out goes in one bin or the other. It is simply not a priority. This is a microcosm of the environmental problem on an international scale. The responsibility lies among the richer states to act as leaders because weaker states simply cannot devote resources energy, or time to the problem. The tension then lies with the developing states like China and India, who should take an interest in the environment, however; are not as willing to because in the short run it will hurt them financially. In addition, these developing states are doing the exact same thing we did during our industrial age so who are we to stop them?

Also, after Al Gore’s film and US IOU, I feel like people, such as has-been politicians, are trying to scare the public with terrifying statistics and pictures and in turn they are having an opposite effect because by blowing things out of proportion they take away from the seriousness of the issue. I always find my self asking is that really true? Are we really on the verge of collapse? I do think if we don’t change both domestic and international policies to work towards solving today’s pressing issues then the end is near; however, if people spent as much time getting their facts straight as they do playing around with statistics and figuring out ways to hype them up, then we would be so much closer to achieving our goals of economic and environmental stability.

Sabbs

]]>Comment on Course Discussion by Andrew Piccirillohttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-2/#comment-591
Fri, 20 Nov 2009 19:04:37 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-591There are some great points in the first article linked to on the class home page. I particularly like:

“This [revaluation] will not be the result of foreign lobbying—indeed, China is more likely to change its policy if foreign policymakers shut up.”

Obama publicly encouraging China to revalue will make them look weak when they actually do revalue. They don’t want to appear as giving in to American pressure. It also suggests that once GDP growth gets back to 10% and exports which are vital to maintaining employment stop falling, they will allow appreciation to continue. They’ll wait until the politically and economically opportune moment to continue appreciation.

]]>Comment on Course Discussion by Andrew Piccirillohttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-2/#comment-581
Wed, 18 Nov 2009 08:53:20 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-581Correction: that should read ‘15% stepwise appreciation’ not ‘15% devaluation stepwise appreciation’ which makes no sense.
]]>Comment on Course Discussion by Andrew Piccirillohttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-2/#comment-571
Wed, 18 Nov 2009 08:51:27 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-571Well, it’s hard to say it’s contrary to Eichengreen’s predictions when they have already revalued a further 19% since he wrote that piece in 2006 on top of the 2.1% they revalued in 2005. I think it makes sense that China ended the revaluation in August 2008 because of the slowing economy and appreciating dollar. The Chinese economy had already begun slowing in early 2008, so it would make sense to lock down on exchange rates temporarily to keep employment up. Once GDP growth rates exceed 10% again, maybe they will become looser on exchange rates. It’s back up to 8.9% in Q3 2009, up significantly from Q1. The dollar also began rapidly appreciating against the Euro in July 2008, which is when the Chinese abruptly stopped appreciation against the dollar. Now that the Dollar peaked against the Euro in January, and has been steadily declining since as the crisis wanes, perhaps that will prompt the Chinese to resume appreciation against the dollar.

In the first article in this Jan 2008 debate over Chinese Exchange Rate policy Goldstein argues that it is in China’s interest to use a 15% devaluation stepwise appreciation against the dollar, followed by 6-8% a year after that. Given the downward pressure on the dollar from current low interest rates, the need for such an appreciation can only have grown since then. Given the paper’s presented at this forum, it sounds like the appreciation which was accelerating up until the crisis should resume as soon as the crisis abates both because the dollar will devalue globally and because Chinese growth will resume. If that’s the case, maybe the public statements are just for show.

]]>Comment on Course Discussion by James Conklinghttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-2/#comment-561
Wed, 18 Nov 2009 01:52:52 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-561I thought the recent talks between President Obama and Hu Jintao would be of interest to both our talks on global environmentalism and global finance.http://www.nytimes.com/2009/11/18/world/asia/18prexy.html?hp
Needless to say, there seems to have been little gained on any front, particularly that of China’s currency policy of a strictly devalued renminbi. This of course is contrary to the 2006 predictions of Barry Eichengreen’s piece we read earlier: “China’s Exchange Rate Regime.” This is disappointing because, in regards to our recent discussion on national debt and fiscal responsibility, a revaluation of the dollar to the yuan would be one way to fix the disequilibria of our Balance of Payments.
Diplomatically, we seem to have few choices when dealing with China. The days of the bellicose world cop are over and there is little i can think of that would be a powerful negotiating point for our side (apart from the series of positions we are not about to compromise on: tibet, taiwan, iran, human rights…). The only thing that comes to mind is the fact that, with China holding so much of our debt, they are to a certain extent beholden to us. We could, for instances, inflate the debt away, leaving both of us at a disadvantage: China with a decreased bond revenue and the US with a hugely inflated dollar. With this as a possibility benefiting neither side, let us hope Obama’s stayed approach will lead to future cooperation.
]]>Comment on Course Discussion by Cherhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-2/#comment-551
Fri, 13 Nov 2009 18:08:50 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-551So, first let me say that discussion yesterday was really great. Also, Andrew P pwns. 😉

To Andrew P – of course I’m interested. And I will now make an effort to tune in to your show. Everybody could learn a lot.

Personally, after weighing Andrew’s arguments and everything we’ve read so far, the specific issue of global warming has become much less of a big deal to me. For me, the point is that mankind is having *some* degrading effect on his natural environment. And time is relative. Whether or not these effects will dramatically change things a century from now or a millennium from now, and whether or not these effects will be the cause of the end of all life… is, to me, missing the crucial element of the *NOW*. This is where I agree wholeheartedly with Lomburg’s argument.

We discussed SETI very briefly in lecture (it’s the search for aliens). Well then – suppose we find them. Then what? Consider the analogous example of meeting the new neighbors in town. Do you invite them over if your Uncle, sickly, starving and abandoned, is shacked-up (literally) on your front lawn? Ok, that wasn’t a very good example…
…but the point remains that while global warming is an issue that we are good to think about *now* (seeing that it will realistically and substantially affect us sometime in the far future), THE HUMAN RACE HAS MORE PRESSING ISSUES RIGHT NOW THAN THE END OF ITS EXISTENCE.

And I guess I’m especially passionate about this because I’m from a developing country. I mentioned, at the very end of our first discussion period, that to be able to willingly devote about millions of dollars in time, resources and energy into this idea of ‘fighting global warming because it will kill all human life in the future’ IS A LUXURY. You can only worry about the entire human race AFTER you’re finished worrying about yourself. And trust me, so many many people still have to worry about themselves and their families, every day.

Disease. Literacy and Education. Economic stability. These should be the issues at the top of the list.

Ok, I’m clam now. 😉

]]>Comment on Course Discussion by Andrew Piccirillohttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-2/#comment-541
Fri, 13 Nov 2009 01:24:29 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-541I just wanted to go through some of the scientific stuff the articles we read and Gore mention in making their points. You can find a lot of very interesting great information on climate skepticism from (not saying I agree with everything here)

http://www.wattsupwiththat.com (not to say there is nothing published, there is, but this site will link you to sources and discuss most things relevant to climate change)

and of course the show I do with my friend Nate on weather and climate Sundays at 4 on WRMC (also listen in for the latest and best forecast for snowstorms this winter!!)

Gore’s movie makes a number of false claims. Indeed the movie has been ruled alarmist and false on nine counts by a British High Court.

1) More frequent and intense hurricanes and linking Katrina to GW.

There is almost nothing to back this up in the scientific literature. Global Accumulated Cyclone Energy, or ACE, has shown no trend over the last 50 years, and has been at record low levels the last two years. ACE measures the total combined energy, or intensity*frequency of all hurricanes. The only evidence to back this up (which wasn’t even available when he made the movie) is a Nature article showing a weak upwards trend in the number of the most severe hurricanes (which was counteracted by a downward trend in the number of moderate and weak hurricanes). This cannot be definitively linked to global warming.

2) Hockey stick graph

He uses the hockey stick graph to exaggerate the appearance of warming in the famous elevator scene. This graph has since been shown to be misleading. Because the graph switches from proxy data to actual thermometer data in 1900, the data after 1900 is much more precise and will show more of the year to year and decade to decade fluctuations that occur naturally. There is good evidence that during the Medieval warm period 1000 years ago global temperatures may have gotten as high or nearly as high as present. But because the proxy data covers up short term variability, this isn’t seen in the Gore graph. A general rule of statistics is not to switch sources partway through your data set. There is also evidence that the proxy data wasn’t entirely accurate.

3) Sea level rise.

Shows pictures of major cities being flooded when IPCC 2007 predictions are for only 1-2 feet, even with a warming of 3C globally. Clearly a scare tactic.

4) Melt water will run underneath the Greenland ice sheets and cause them to slide off into the sea unexpectedly.

Totally unrealistic. There is evidence that when large surface lakes suddenly drain underneath the ice there is a brief small acceleration. This could cause them to speed up somewhat, but won’t cause massive ice loss. It’s going to take at least a couple hundred years to loose the Greenland ice sheets even with a lot of warming. Best estimate with continued CO2 emissions: 400 years according to most scientific literature. Gore implies it could happen soon.

5. Linking loss of snows on Kilamanjaro to climate change.

The loss of snow on Kilamanjaro is due to the clearing of forest (ironically a much bigger environmental issue) causing drying of the air. This was known at the time he made the movie and it was ignored because of the symbolic alarming value of the symbol.

there are more but I think that’s enough for now..

Stiglitz mentions a disappearance of the Gulf Stream – this is highly unlikely and there is virtual no science behind this happening.

He also mentions 1/3 of Bangladesh being underwater by 2100, but this is based on more extreme predictions which are not generally accepted. The IPCC 2007 prediction is 1-2 feet, which of course is bad enough.

Lomborg makes a number of good points about Gore’s movie, but his point that Gore ignored increases in Antarctic sea ice is not. Antarctic sea ice is mostly controlled by currents, not temperatures. Thus it wouldn’t make much sense to look at changes in Antarctic sea ice in a discussion of global warming. Arctic ice, is however, strongly influenced by temperatures. There’s a reason people ignore Antarctic sea ice.

McKibben:

1) McKibben’s first mistake is calling Lovelock a competent observer. He’s insane and he is totally 100% unscientific and there is a large body of scientific literature contradicting him. But he’s in his 80s and I think the Gaia hypothesis is actually quite intriguing, so I’ll cut him a break.

2) The data coming back from the earth and climate has been nearly universally worse than predicted (so we should assume it will be worse than predicted in the future too).

Not even remotely true. Hansen’s 1988 temperature predictions and IPCC’s 1990 temperature predictions were way off and both have come out and admitted those predictions ‘assumed too large a climate sensitivity to CO2.’ Look at a graph vs. predicted and you’ll see what I mean. It’s that far off.

Sea ice predictions this year were way too far off. Experts asked to submit predictions to the National Snow and Ice Data center (NSIDC) for this years arctic sea ice minimum, which occurs in September, unanimously underpredicted how much ice there would be. Surveys were done all spring and revised all the way right up until July. There were 15 predictions in July, all underpredicted what would happen in September by a huge margin.

The chair of the NSIDC said in 2007 when ice melted dramatically that sea ice had entered a “death spiral.” The general idea was ice loss was accelerating. Instead sea ice which usually only fluctuates a quarter million sq km from year to year, has recovered a solid 1 million sq km from 2007 to 2009 (From 4.2 to 5.3 – a 25% recovery).

Even the most recent temperature predictions from literature up to 2005 included in the 2007 IPCC report show temperatures rising much faster than they have. Because of the decline in temperatures 06-09, especially in 2008, the 12-yr trend-line is now flat. The probability of a flat 12-yr trend-line according to the UN was less than 20%. Not a failed prediction (yet) but getting there. The leveling off of temperatures since 1998 also suggests that there is a cyclical component to global temperatures that the UN has been ignoring called the PDO. The PDO is a measure of temperatures on the Pacific ocean and influences global weather patterns. It oscillates on a ~30-yr time scale. During it’s last negative phase 1945-1975 global temperatures flat-lined or slightly declined. During its last two positive phases 1905-1945 and 1975-1998 temperatures rose dramatically. There is a background warming as well. Since the PDO has gone into a neutral-negative phase in 1998 (it’s not totally clear we are in a new negative phase yet) global temperatures have flat-lined or slightly decreased … as PDO-theory would predict!!

IPCC predictions of methane rises have been totally off. Methane in the atmosphere was predicted to rise and it has not in the last 10 years. CO2 levels haven’t risen quite as fast as predicted given the higher than expected CO2 emissions.

All of these are some quite reassuring signs about climate change I think (relative to the dire predictions).

3) Methane is leaking from Siberia at five times the predicted rate and this is bad news because methane is a very potent GH gas.

Yes, there has been some evidence of very rapid methane loss from Siberian lakes. But no one knows the total emissions of Siberian lakes and bogs. If they did perhaps they could tell us why the concentration of methane in the atmosphere hasn’t been increasing at all for the last 10 years (contrary to predicted).

4) James Hansen is the world’s top climatologist. He even provided a citation!

Not true. Hansen is as I said in the discussion, the father or ‘god’ of climate change, but certainly isn’t the top scientist. First of all climatology incorporates many different fields and there are the foremost experts in those fields. Second of all, in terms of modeling the predictions of climate change there are many more advanced modelers out there. Third, he has become more of an activist than a scientist and Hansen’s former supervisor at NASA has since said that in his time at NASA, Hansen “embarrassed the agency.”

5) The earth is as hot as it has been in a million years. No one has accurate or precise enough data to know this. We can’t even be sure this is the hottest in the past 2000 years (although it is likely). There’s strong evidence the Holocene Thermal Maximum around 10,000 years ago was warmer than present, with Arctic temperatures up to 4C warmer than present. You’ll note polar bears were around back then and did just fine. Prior to that we were in an ice age so it’s not entirely surprising we have warmed since then.

6) His information on the solar industry has become out of date in the 3 years since his article.

The solar industry hasn’t been growing 20-30% a year, it has been almost doubling some years. Also it’s no longer just Japan and Germany, the major markets now include the U.S. (esp. CA), China, Spain and many other European nations. The price of producing has been cut in half in the last five years and fell by 30% this year alone. It’s projected to fall another 60% or so in the next few years. It likely will become as cheap or cheaper than conventional electric power generation in many grids, perhaps most. Basically, we should have subsidized solar a decade ago but were too busy arguing with the Bush administration if and when the world was going to end.

2) The PDO has been ignored. A ~30-yr cycle between warm and cold pools in the N. Pacific. Warming occurred 1905-1945 and 1975-1998 during its last two warm periods. Cooling/flatline in temperatures occurred during its too cold periods, 1945-1975 and 1998 to present.

3) Solar activity, according to a study in Nature, was higher in the last 70 years of the 19th century than any other 70 year period in the last 10,000. There are number of obvious and less obvious ways in which the sun could influence climate.

4) The physics of CO2 will only cause 1.2C of warming if CO2 concentrations are doubled from 390 at present to 780. The rest of the predicted warming is hypothesized feed-backs which are extremely complex and which I do not believe we have a good grasp of. Mostly its cloud feed-backs. Predicted cloud cover changes in response to global warming is found by looking at what happened in the 20th century. Except there’s good evidence of cloud changes due to other factors in the 20th century, not just GW. Personally I believe in 0-2C of warming by 2100 with continued emissions.

So if anyone’s interested or disagrees I’d love to hear.. tune into our show if we get McKibben on air. Sorry most of this wasn’t cited or provide sources, I was in a rush (sorry for so long!), but I would be happy to provide them if anyone wants them.

]]>Comment on Course Discussion by James Conklinghttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-2/#comment-531
Tue, 10 Nov 2009 23:09:45 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-531Following on Nicks post, i think it is important to reiterate that there while there is a strong correlation between population and economic growth, there is no clear causal relationship. The elective affinity the two share has to do with the idea of development writ large; one important model of developmental demographics is the birth rate/ death rate graph, where a society transfers from a pre-developmental moment of high-birth rate high-death rate to a moment of low birth-rate low death-rate. However, there is usually a lag in which death rate-drops off while birth-rate remains high–in this period, a country’s rate population growth soars before eventually leveling off. This was the experience of Europe in the Enlightenment and Industrial ages. The question that needs to be answered is why some developing countries have succeeded in lowering mortality rates while prolonging the lag in declining fertility-rates and what effect that demographic explosion is having on the economy.
]]>Comment on Course Discussion by Nick Alexanderhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-2/#comment-521
Tue, 10 Nov 2009 04:38:15 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-521Here is a recent Economist article (from last week’s issue) that is directly relevant to our discussion of Malthusian fears: http://www.economist.com/opinion/displaystory.cfm?story_id=14744915

Most significantly, the article observes that contrary to Malthusian theory the industrialized world has witnessed a pattern of falling fertility wherein “when people got richer, families got smaller; and as families got smaller, people got richer.” It goes further than this, however, noting that the Malthusian worry of unsustainable population growth is still a very real concern that can best be addressed through a combination of technological innovation and governance.

]]>Comment on Course Discussion by Andrew Piccirillohttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-2/#comment-511
Wed, 04 Nov 2009 00:27:59 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-511I honestly don’t see the problem with currency speculation (or speculation in commodities like oil for that matter). If the pound hadn’t been overvalued in the first place, Soros’ ‘attack’ would never have worked. In effect, he just sped along the process of getting to the market rate. The real problem was not enough demand for British goods and services, so devaluation was inevitable. People who earn a living speculating on changes in exchange rates help to keep the exchange rate near the market rate which theoretically optimizes economic outcomes. Likewise, speculators in oil help to smooth out the rapid peaks and troughs that fluctuations in supply and demand would cause otherwise.
]]>Comment on Course Discussion by Xiaoxue Wenghttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-2/#comment-501
Sat, 31 Oct 2009 19:17:48 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-501Having read everybody’s posts, I am surprised by the immense interest of the class in China-US relationship. Though the yuan-dollar debate is an important one, I will not delve into it here as my classmate have already made my views on the topic.
Instead, I would like to present a few issues that were briefly mentioned in class lectures, but have been hardly explored here.

1) Questioning capital liberalism and the role of speculators in international monetary system
The case of Soros attacking the British pounds has been presented, but the implication of such speculative attack was not discussed as much in class. I am not very familiar with the case of British pounds, in terms of the economic/political damage that such successful speculative attack brought. However, I know a little bit about the Asian Financial Crisis in 1997. As “contagion” nature of short-term capital flow fully manifested itself, the South East Asian economies (both originally-problematic ones and healthy-yet-“speculated”-as-problematic ones) deeply suffered from its currency instability caused by speculators’ attack. Unlike the British economy, these were developing infant economies which depended much on continuous foreign investment. In other words, the damage from speculative attacks were greater in these economies than developed economies, even if they were at the same level of capital openness. As a result, these economies did not get back to a sustained course of growth for many years to come.
It is the speculators who attacked the economy, however it was the international monetary system with loose capital controls that set the preconditions for such attacks.

Nowadays, currency speculation has become a legitimate way of earning living for some people. While the Gold Standard and the Bretton Woods system de facto limited short-term capital flight, the current international monetary system allows currency speculation, which can greatly undermine economic stability in this increasingly interconnected world.

2) The role of the IMF and its effectiveness.
As we learned in our class that the IMF practically “reinvented” itself to continue existing in the post-Bretton Woods system. Now the IMF is seen as the official development agency of the developed countries, along with the World Bank and other development banks. However, as many of us have heard, despite its financial and political power, the IMF’s professional expertise in the area of economic development has been questionable. Given its failures in South East Asia and many African countries, maybe it’s the time again to not only “reinvent its purpose of existence”, but also “reassess its claimed professional expertise” and “reflect on its appropriateness of existence.”

]]>Comment on Course Discussion by Cher Griffithhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-491
Sat, 31 Oct 2009 18:34:44 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-491So we all agree that the Chimerica ‘deal’ is out of control. It’s the major problem that nobody seems to want to (help to) solve. Scapegoating only wastes time as we dance around destruction.

Despite the burgeoning strength of the Chinese economy, Stiglitz rules-out action on the part of China to be effective. He argues that Yuan appreciation would slow China’s growth, and hence global economic growth – he has a point, but I think that’s taking it a bit too far. The resolution of the Chimerica problem is going to no doubt hurt everybody somehow – it’s that big. Of course China should do it’s part. But Stiglitz lays the major responsibility on the United States – the solution, he says, lies in a combination of U.S expenditure cuts and a progressive income tax (tax-cuts for low income Americans, and increased tax-cuts for wealthier Americans). But of course a progressive tax will almost certainly never pass in the United States, because the wealthy have earned their wealth and damn all those who would have it taken away from them, even if it is for a national objective.

]]>Comment on Course Discussion by Alex Knighthttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-481
Sat, 31 Oct 2009 15:45:29 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-481I found the article you mentioned interesting, but I thought it made some pretty drastic possible predictions.

I think it’s interesting how this article looks to so many parallels between our situation with China and the Cold War with Russia. While historical analogies can be useful, they can also be dangerous. I think looking for comparisons between the two situations isn’t the most applicable now because of how different they are. Despite China’s growing military, I don’t think the military force side of the Cold War is likely to be reflected, and I just cannot imagine our economies cutting ties.

Some of the key elements of the Cold War are missing in today’s relationship with China. While the Chinese government is fairly mysterious to us, there is significantly more openness than there was with the USSR. China is basically “capitalism with American characteristics,” while the USSR feared and hated capitalism. On the American side of things, we don’t have the same ideological fear of communism, nor do we have the same fear of the Chinese taking over to the extent we feared the Soviets. Furthermore, we are so interdependent and locked into China with trade, as “global economic integration has made China ‘more willing than before to accept America’s dominance.’”

I found the last paragraph of the article most interesting. “China, far more than an economically challenged America, is roiled by social tensions. Protests are on the rise, corruption is rampant, crime is surging. The leadership is fearful of its own citizens. … Its frailties—social, political and economic—could eventually imperil both its own stability and its dealings with the outside world.” I think this internal turmoil in China is something we should worry about as a base to China’s relationship to the US. I don’t see the present China causing any major problems for us, but it is a very unstable country and maybe all of our worries will be rational with an internal change of stability?

One thing I think we should take not of in relation to our global political and economic systems is the bipolarity developing between China and the US. Questions of a G2 seem significant, and while there are debates on the stability of bipolarity, I wonder what having these two large powers could mean.

]]>Comment on Course Discussion by Nick Alexanderhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-471
Fri, 30 Oct 2009 07:55:17 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-471The Economist article I posted earlier only scratches at the surface of the China v. America or Yuan v. Dollar debate. For those who are interested, it is worth mentioning that this week’s Economist delves into much more detail regarding the ‘Chimerica’ relationship in a 14-page special report on the subject: http://www.economist.com/specialreports/displaystory.cfm?story_id=14678579.

There is little doubt that China is flexing its economic muscles; “in September it bought $50 billion in IMF bonds to boost its influence in the institution and strengthen the role of non-dollar currencies” (5, Economist). In the same breath, Alhaji is correct to point to the fact that China is expanding its global economic importance as a trading partner in the African continent, among others – a fact that is hardly insignificant. That being said, however, China and the Yuan have a long way to go. Notably, China’s GDP in 2008 was $4.4 trillion, smaller than Japan’s, and less than a third of America’s. Not only would the collapse of the dollar deal a severe blow to China, which holds over $800 billion in US treasuries, but it is not clear that China seeks to make its currency convertible in the near future – a pre-requisite that must be implemented for the Yuan to become a global reserve currency.

On top of this, China’s recent economic successes have glossed over a maelstrom of social tensions that are simply waiting to erupt, as a rising power it remains conspicuously deficient of soft power, and its authoritarian government does not inspire fiscal confidence. However, there are real reasons for concern: China is actively expanding its hard/military power beyond necessary levels, and it is seeking to put a man on the moon – many have begun to wonder if an Asian Cold War is on the horizon. If indeed this is the case, however, we can rest easy – for the moment at least, America has the upper-hand.

]]>Comment on Course Discussion by Sabrinahttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-461
Fri, 30 Oct 2009 04:04:30 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-461I think what’s really missing from this debate is the political aspect of China’s rise to power. Time and time again we have seen that China does not necessarily do what’s best economically because they are driven by an overpowering strong political ideology. Although the human rights situation in China has greatly improved, the authoritarian government today holds and tortures several thousand political prisoners from Tibet and violates human rights law. China has always been an aggressive and oppressive nation. Ever since China’s army opened fire on peaceful, pro-democratic protesters in Tiananmen Square, the Communist Party has had an unspoken pact with the Chinese people – they are allowed to have economic freedom as long as they give up their political freedom. Can a state be considered a potentially powerful economic power when their government holds political power through fear and threats? No, because stability on both ends needs to be achieved.

There is so much talk about China growing economically that we forget China is a very poor nation. There are regions in China where people live off of less than $3 a day, the cost of a smoothie at the grille. I remember reading something along the lines of “we should be careful because in the future we might need China more then they will need us and then we’ll be screwed”. I think this does not capture the picture accurately because China’s economy is so dependant on us that hurting us will only hurt them. China has yet again another unspoken pact, this time with the U.S. – we’ll purchase U.S. treasury bonds with the money we receive from exports in order to keep the dollar strong. Our economies are so intertwined that we will always need each other. However, according to the article, China cannot do anything about the global imbalances their relationship creates and the responsibility lies with the U.S. Each nation will continue to do what works for them until they not only feel the pressures from the outside but actually feel the economic strain within.

]]>Comment on Course Discussion by Andrew Piccirillohttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-451
Fri, 30 Oct 2009 01:32:20 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-451I mean think of it this way, the Chinese hold 1T+ in USD, but they hold a whole lot more than that in their own currency. If the USD devalues vs the Yuan, they lose out on their 1T assets in USD. But the real value of their tens of Trillions in Yuan increases. So at some point when they decide to stop using an export led growth strategy, they are going to want their currency to appreciate and they’re not going to care if that means their 1T in USD devalues dramatically because they hold many more Yuan than USD. So I’m guessing they’re just not ready to do that?
]]>Comment on Course Discussion by Nat Nelsonhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-441
Fri, 30 Oct 2009 01:29:15 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-441The Economist articles provided by Nick were an excellent supplement to our recent conversation regarding the rising power of the yuan and its chances of overtaking the USD as the international reserve currency. That journal is clearly of the opinion that the current status of the dollar is secure for the time being and that unwarranted US fears of Chinese economic muscle-flexing may result in overly harsh, deleterious protectionism while simultaneously detracting attention from important political and human rights issues. While the article addresses a number of factors limiting China’s economic preponderance in the near future, (social and political unrest at home, flagging technological innovation, and the shrinking – albeit slowly? – trade imbalance, to name a few) its primary argument (the one advocated by many in the class as well) seems to rely on the belief that releasing USD into the international economy would be a catastrophic and mutually destructive economic policy. Jesse comments on this, noting that the consequent decrease in US consumption would certainly damage Chinese export-driven economy. As well, since China holds $800 b of American debt (the Business Week article asserts that “Beijing holds $2 trillion in dollar assets), is it not also the case that if the USD collapses (via dollar dumping or speculation of dollar dumping), then China will lose out on close to $800 billion?
Though these arguments strongly support the notion that the USD will tentatively remain dominant as the Nth currency, it seems to me important to acknowledge the unenviable position in which the debt-ridden US finds itself. As Alhaji claims, citing increased Chinese trade with African Nations, it is possible that the current US role as the principle importer of Chinese goods and services may not remain unchallenged. His argument is bolstered by LeVine note of the bilateral arrangements between China and several other countries in April that bypassed the dollar as an intermediary currency. As the yuan seeps into foreign markets and economic deals, the need for the USD as a global medium of exchange will be inevitably diminished and its significance to Chinese trade and financial reserves will decline. Irrefutably, the dollar is buoyed by its free convertibility and the strong market for USD-bonds, two difficult, but necessary currency features that China would have to adopt in order to actually promote the yuan as the international Nth currency. LeVine summarizes the sentiments of skeptics: “The dollar is too entrenched as the international currency of choice,” the US is “by far the world’s largest economy,” and “the Chinese act so deliberately… they wouldn’t [elevate the yuan] in the short or immediate term.” That said, with such considerable debt in the hands of so powerful an economic rival, it seems foolhardy and presumptuous to neglect the real possibility that the dollar may not long remain the international reserve currency.
]]>Comment on Course Discussion by Andrew Piccirillohttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-431
Fri, 30 Oct 2009 01:17:45 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-431I often wonder at that question Jason, what’s the point of having all those reserves if you can’t ever do anything with them. This is the answer I’ve come up with, tell me what you think. They don’t need to ever do anything with them, they’ve already done what they wanted with them: grow their economy massively by making their exports cheap via devaluation of their currency.

It’s a long-term strategy. In the short term, you lose out on standard of living gains. But if your export sector and entire economy keeps on growing 10% a year it doesn’t matter. Plus it gives added stability for you. You can change exchange rates and domestic prices however you want, reducing risk in the market, which is good for growth.

If China’s reserves suddenly dissapeared, would we say their economic policy the past 20 years has been a failure? No they grew rapidly by fueling world consumption of their goods. It isn’t actually having the reserves that is good, it’s the process of acquiring them that has been good. Plus actually having the reserves has some benefits too even if you never “cash in.” You may get some leverage over the nation’s whose currency you hold. Especially if your economy eventually becomes larger. And you get to use them to maintain market stability.

What do you think? Am I missing something? One thing that doesn’t fit with this is China’s complaints about USD devaluation. What do they care? They already accomplished what they wanted: massive export led growth. But perhaps they want to appreciate their currency on their terms, not the U.S.’s and maybe they’re not quite ready for that.

]]>Comment on Course Discussion by Jason Mootyhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-421
Fri, 30 Oct 2009 00:58:38 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-421Ok. I’m jumping into a very long and mixed debate, so I apologize if what I have to said has already been stated. You guys all have very interesting thoughts, but it’s a lot of material to sort through.

Alhaji, I think that you were right to explore the possibility of China’s currency becoming a reserve for foreign countries and I appreciate your focus on Africa. I think that previously (for example, in the somewhat dated articles we read for class) the ability of the yuan to become a reserve currency was prohibited by capital controls. The lack of yuan-dominated bonds and the difficulty in holding yuan abroad made it impossible. But now that’s starting to change:

This article, however, serves to reinforce the idea circulated in this discussion that the Chinese seek to achieve regional hegemony and do not have any aspirations (yet) of world domination. I feel like all of this is getting increasingly like 1984 with gigantic world blocs.

Recently I’ve been thinking about what the downside of China’s position is. For me, it seems too good to be true: they are amassing huge reserves while stimulating their economy. I can criticize the lack of domestic demand developed, but since the Chinese are excellent savers, a crash in domestic prices might induce a lot of money into the market. If the US stopped cold turkey buying Chinese goods, the result would be catastrophic, but domestic savings might be able to save them (whereas from our side, the lack of Chinese goods would only hike up prices for us… and we already don’t have enough money to buy what we do). The problem is (and I would love feedback on this) is that I think the Chinese are running themselves into a hole. They have so many reserves that I don’t think that they will ever be able to feasibly do anything with them. If in desperation they wanted to cash their US dollars in, they would destroy the value of the dollar and, in doing so, the value of their reserves. And I don’t see them being able to see the reserves off slowly either, seeing as changing the system would destroy their export-market. They could create a ton of trouble for the United States and destroy its currency, but eventually we would recover, and they would have lost the one threat they had. It’s a one-time game and once they do it, it’s over. They’ll be left with nothing.

I suppose our main worry would be that the Chinese would stop needing us before we stop needing them. If they “get in bed” with Africa as Alhaji suggests as a possibility or turn to Asia primarily, we’re out of luck. No longer will we be able to fund our debt and we will finally have to find solvency. Having the dollar as the nth currency has allowed our domestic government to do whatever they want (most countries don’t have the freedom we do to run budget deficits) and I think that American life would drastically change–but then again I think it needs to. I am not a proponent of eternal debt accumulation, so maybe the Chinese moving on would bring on tough, but necessary change.

]]>Comment on Course Discussion by Andrew Piccirillohttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-411
Fri, 30 Oct 2009 00:20:30 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-411Also Alhaji was speculating African GDP might be enough to become China’s second largest trading partner. I couldn’t find numbers for Chinese imports/exports from Africa as a whole but I did find Africa’s total GDP to be 2.5 T, which even if they maintained very close trade relations with China, I don’t think would be enough to approach the U.S. with GDP at nearly 14T.

]]>Comment on Course Discussion by Andrew Piccirillohttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-401
Fri, 30 Oct 2009 00:10:33 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-401Ok I just wanted to hammer out some of the details of this discussion on the imbalances between China and America and make sure we’re all getting the details right. I want to go through point by point to make sure we’re getting the mechanisms right.

Logan starts it off by arguing we shouldn’t fear a run on the dollar because China would never try to sell its bonds (of which it has over 1T). I agree with this argument, but I disagree with the argument that “China selling its bonds would help the Fed’s process of QE.” If china sells its treasury holdings, then it has to find a buyer of these USD assets. Thus there is no net change in the amount of USD in circulation. Although, it would cause devaluation of the USD leading to inflation eventually, if China sells its USD holdings to another country, or even to domestic investors, this doesn’t increase the amount of money circulating in the domestic market. It just raises interest rates and causes a devaluation of the USD. China selling its assets would work against the Fed’s QE by lowering the demand for treasury bonds. The point of QE isn’t devaluation of the currency, it’s to get lending going by increasing bank reserves. The Fed would have to step in and buy even more. It would pose an especially interesting problem because almost all of the Fed’s balance sheet is in short term bonds. Only 300 billion of the Fed’s 2T+ balance sheet is in long term T notes. Meanwhile almost all of (until recently 100%) of China’s assets are in long term treasury bonds. So while the Fed usually buys short-term, China would be selling long-term, and the Fed would probably have to take the extraordinary step of buying even more than the original 300B of long-term notes. The Fed finished up buying the 300B of long-term bonds (which they announced the middle of March) during the auction of 7-yr notes just the other day, and I don’t think they intend to buy any more long term bonds.

So short story: China selling its bonds would work against the Fed’s QE. And I agree given the tight control they maintain over investment, they’re not going to allow a panic on the USD by selling their assets.

Chalene brings up the theory from the Ascent of Money that Chinese buying of US treasuries kept interest rates low –> bank lending confidence –> sub-prime crisis. I’m curious about this. Even if low interest rates caused the crisis, wouldn’t the Fed have just used market operations to keep the target interest rate low? If that’s the case (is it?) then the problem was simply too low of a target interest rate which is Greenspan’s fault. However, I’m not convinced of this either. Yes low interest rates lead to more lending. But even if there were high interest rates, banks could still lend billions to people/groups that couldn’t pay it back. So I think it has more to do with the type of lending that was taking place, and the fact that firms had over-leveraged which magnified the fall when sub-prime burst. Low interest rates don’t necessarily lead to either with the right restrictions in place. Here are a few problems I would suggest instead of low interest rates:

1. Bundling of assets. Mortgages were bundled and then sold repeatedly between institutions and investors until what the bundle actually contained and an assessment of the risks was no longer possible.

3. Overleveraging. I think we read a piece or two on this earlier in the semester. We had a particularly heightened business cycle where people did not make accurate risk assessments because everything seemed to just keep going up and up and up. If the Fed counted assets (think exploding home prices) in their calculation of inflation they would have seen much higher inflation rates and realized the business cycle was exploding. The IMF has recommended (ignored) asset prices (particularly homes) be factored into inflation equations.

Perhaps raising interest rates in 2005 or so would have helped cut short the business cycle and prevented overleveraging making the downfall easier. However, that doesn’t solve 1&2 and we haven’t done the necessary steps to solve them yet either. But I’m not sure why if 1&2 are solved low interest rates would be much of a problem. Thoughts?

Will suggests that China selling its assets would lead to inflation because it would put more USD in circulation. I agree it would lead to inflation but is this the right mechanism? I have been trying to figure this one out and I can’t figure it out but this is what I’ve come up with: If China sells its USD assets they have to find a buyer. So someone else takes the asset. There’s still the same amount of USD in circulation. There is less demand for dollars now yes. This causes a devaluation of the dollar. But there’s no more USD in circulation in the U.S. economy. China just sold its asset to someone else (at a loss presumably because they had to sell it cheap to get a buyer, raising the yield on the bond). So it just causes a devaluation of the dollar and high interest rates. It becomes harder for the U.S. to finance its debt, so it has to intentionally print money to make debt payment easier and cause inflation.

Also, I don’t think we can take for granted that the Fed has made sure not to print so much money that there will be inflation. (“I would assume that the Fed has this under control, and the amount that they’re printing probably isn’t enough to cause a serious jump in the inflation rate.”)

IMO The Fed faced an unprecedented disaster and took unprecedented steps the consequences of which are not known. They printed an unthinkable amount of money. They more than doubled the monetary base (M0) from less than 1T to over 2T in less than a year. It took the entire course of the Fed’s history to reach 1T on the balance sheet, now we just jumped to 2T. Personally, I don’t think this is destined to cause inflation but others disagree (note the tripling in gold prices the last year) and I don’t think it’s a safe assumption that the Fed has this under control.

]]>Comment on Course Discussion by Fernandohttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-391
Thu, 29 Oct 2009 23:50:06 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-391I thought it would be interesting to talk about Obama’s recovery plan and its effects on the currency market, especially because it shows how domestic conditions in the U.S. might have international repercussions.
The massive government spending that is being channeled to spur economic growth in the U.S. seems to be exposing the entire world to variations in the currency market that might have a negative collateral effect on the economic policies of other states. http://www.lemonde.fr/cgi-bin/ACHATS/acheter.cgi?offre=ARCHIVES&type_item=ART_ARCH_30J&objet_id=1101933. The devaluation of the dollar has been drastic. Since March 2009, the dollar has lost 15% of exchange rate value, even if the Fed and the Treasury have been reassuring the public about the need for a strong dollar.
If the dollar were not the main kind of commercial exchange currency and the main kind of reserve currency, Obama’s recovery plan and its concomitant massive government spending would not elicit anybody’s attention. However, that is not the case, and every country in the world depends on this currency. Therefore, as the value of the dollar decreases, people will want to sell their dollars and invest in a more lucrative currency. This cycle of capital flows is what seems to be reinforcing the depreciation of the dollar.
As a depreciated dollar implies more exports, but less imports from outside the U.S, other countries or regions (i.e. Lain America) who depend on the U.S. market for their export-competing industries, the fall of the dollar might have a problematic effect on their growth, as demand for imported goods will gradually decline if this trend persists.
]]>Comment on Course Discussion by Sam Michelmanhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-381
Thu, 29 Oct 2009 21:46:25 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-381So I’ve been very interested in what the future of the international monetary system is going to look like. We’ve talked quite a bit in class “Chimerica,” but my interest lies more along the lines of how real the decline of the dollar is as the world’s reserve currency and what, if anything, could or should replace it. I found an article on the IMF’s website written this September by, of all people, Jerry Cohen:http://www.imf.org/external/pubs/ft/fandd/2009/09/cohen.htm
His contention, which I find very compelling, is that serving as the world’s Nth currency is not only a question of economic capacity, but also takes into consideration some serious political issues such as “the quality of governance in a currency’s home economy and the nature of relationships between states. Is the issuer of a currency capable of ensuring political stability at home? Can it project power abroad? Does it enjoy strong intergovernmental ties—perhaps a traditional patron-client linkage or a formal military alliance?”
In this light, it would seem that the Yuan is not a ready adversary to the dollar. China’s political situation at home is often less than stable, despite the image of unity and homogeneity projected by Beijing. Not to mention the huge array of capital controls we have discussed in class that already exist in China and the the fact that China’s financial system is “underdeveloped” according to Cohen. As many of the readings we’ve discussed mention, China does indeed have the capacity, but its policy and governance structure is not set up to serve as the world’s Nth currency. Over time of course, policies can change and governance institutions can be re-designed.
The Euro, also, doesn’t seem to have the ability to challenge the dollar because it exists purely as an artificial construct and is only as strong as the individual countries that comprise it allow it be. Not to mention that Europe doesn’t have the political power to match the United States.
Cohen concludes this article with something very interesting–he talks about a more fragmented global monetary system. We’ve seen this paralleled in trade with the rise of regional trading blocs such as the EU and NAFTA, and indeed, it appears that money might follow suit as a recognition of those trading preferences.
]]>Comment on Course Discussion by sheniquehttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-371
Thu, 29 Oct 2009 13:26:32 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-371The Chimerican beast needs to be tamed.

I feel like China buying American debt and America spending kind of uncontrollably (given our NEGATIVE savings last year), is like a huge elephant in a small room…and of course, no one is saying anything. Thankfully, the Stiglitz article gave a brief and notable mention to the IMF for all of their soft power initiatives against the US and China who are clearly on the verge of sending the rest of the world into economic chaos (again).
I also think it is worth discussing what might happen if this viscous cycle is allowed to continue. Without having any economic background, it is near unfathomable to think of the US dollar, in this day and age, as a secondary trading currency. Yet, after reading those articles it really only seems like a matter of time. It worries me to think of the implications of the Yuan (or some combination of currencies) becoming the reserve currenc[ies] of choice, not just in terms of the future of the American economy, but in terms what that would say about American hegemony—pretty scary in my opinion. I think that while we should not expect to see total abandonment of US dollars anytime soon, we should expect for China to begin lowering their reserves (which they have already begun doing apparently), but for security reasons as well as economic reasons. Maybe it is my American naivete that is saying, “that’s not going to happen,”…but we are such an integral part of the world economy that if we were no longer a big player, that would have repercussions not isolated solely to economics, and I really do not see the benefit in that for anyone in the world.

]]>Comment on Course Discussion by Alhaji Jallohhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-361
Thu, 29 Oct 2009 13:02:07 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-361Wow, I realize the strong interest on, as Chalene put it, “Chimerica”–China Vs U.S. I agree that this is significant…but one aspect that I think is absent so far on the discussion is the importance of China’s growing hegemonic influence in Africa (a continent with vast untapped natural resources) and the implication for both countries.
The BusinessWeek article we read this week on “China’s Yuan: The Next Reserve Currency?” is insightful and timely. So is the answer to this question affirmative? Well, I don’t know. But here are things to get us thinking:
Trade between China and Africa has quadrupled and the former is stepping up its export (mainly textiles) into the continent. Increasing Chinese investment in energy, infrastructure etc. is felt across the continent from the shores of West Africa to the horn of Africa. Such partnership between Africa and China might be meaningful and less suspicious because there is no experience of colonization between the two…
Given these trends, it is theoretically possible for Africa to replace the U.S. as China’s largest importer, and eventually the continent may adopt the yuan as its reserve currency. Depending on the relative size of the entire economy of Africa (which I don’t know) to that of the U.S., the latter will no longer be able to share the “same bed” with China (refer to the article on “China & America, The Odd Couple” posted by Nick). Instead, China will get married to Africa and obtain a new bed to share with the continent. This is simply because China’s economy will be less dependent on the U.S…(ceteris paribus). And U.S. policies will then have little impact on the chinese economy
So James, don’t you think your statement “The Yuan is not, nor could it be, the next reserve currency.” is a very strong one? I think that’s an oversimplification… Yes, you are right to say that China might not be interested in becoming the “global hegemon following in the footsteps of the US”. And you are equally right (by citing Levine) about the possibility of using a basket of currencies supervised by the IMF…voila! talking about IMF rings the bell of politics. As we’ve been studying for the last couple of weeks it would be naïve to ignore the effects of politics on economic outcomes…

So how about china en politics?
As far as I know, China neither seeks to export its political ideology nor meddle with the internal politics of African states and others, yet it is seeking political influence in the international arena. One proof: Taiwan is only recognized by 5 out of over 50 nations in Africa source: http://www.heritage.org/research/africa/HL1006.CFM. Bear in mind that Africa forms about 1/4th of the U.N. General assembly…think about that for a moment. What if China manages to secure all or most of the African votes (+some of Latin America) in policy making at the U.N.? then China will be the bread winner of the system, influencing policies in IMF, WHO etc. on its favor. So James, that sounds to me like a viable approach to becoming “the power house” of a “multi-polar” world while maintaining the reserve currency….

Having said that, China’s position towards Africa is not as black and white as one may think…There are many criticisms mounted against china’s approach. Some believe it’s a new wave of neo-colonialism propping up corrupt regimes etc. Moreover, china’s cheap export (mainly textiles) to the continent undermines the competitiveness of local industries etc…oh, plus its outward growth orientation (and many other caveats) might prove disastrous, just as we learned about the experience of GREAT Britain…

ok summary: China is making huge economic progress and gaining political influence in the international system. That is good. But everything is not as rosy as we might think…
In my humble opinion, I think China is ahead of the race.

]]>Comment on Course Discussion by Jesse Gubbhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-351
Thu, 29 Oct 2009 05:45:57 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-351We’ve said this before, but the severe depreciation of the dollar if China were to unload its reserves and Treasury bonds would damage not only the US economy but the Chinese economy, which is dependent on the United States’ appetite for its exports. China benefits by devaluing its own currency, not the dollar. This suggests that China is unlikely to make drastic moves to unload its dollars. Drastic moves are not in China’s interest, but it is difficult to imagine how China could sell any of its dollars, even a relatively small portion, without causing inflation and thus decreasing the value of its assets.

Loans make printing money and government spending possible because the US does not need to print extra money out of the air but simply return money, previously in Chinese reserves, to domestic circulation. Right?

Clearly it’s not this simple and risk free. The issue of fighting the financial crisis and inflation is taken up by Paul Krugman in his article on gold standard mentalities (see IPE homepage). He argues for prioritizing the need to maintain liquidity and access to credit above fighting inflation, arguing that government should be doing more not less to fight the recession. He illustrates this point by showing how raising interest rates in the Great Depression in an attempt to prevent price increases was disastrous and misguided. His argument is well taken, but the relationship of access to credit (maintained by low interest rates) and the current crisis is not fully explored. Although most recently the problem was a credit crunch, with banks requiring huge bailouts, this was precipitated by a crisis of easy credit – the lending of mortgages to individuals who could not repay them. Going forward, is the policy needed to end the recession the same as should be implemented in the long run? Or by continuing to maintain lines of easy credit do we risk a future crisis?

]]>Comment on Course Discussion by Spencer Wrighthttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-341
Thu, 29 Oct 2009 05:08:49 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-341Off topic, but I’m curious about the explanation of the abandonment of the “New Gold Standard.” We’re offered four explanations of why countries abandoned gold (no leadership, collapse international norms, democracy, and bad luck), and eventually told that they can all be combined for form one rich explanation. While perhaps this is true, it leaves me feeling a little dissatisfied because although it certainly explains why states abandoned gold, it is only because we’ve thrown every possible theory at it.

But I think you can make a pretty good case for a lack of US leadership being the main cause of the failure of the New Gold Standard. First, the “empowered populace” seems pretty unpersuasive. Sure democracy is great, but how much does the populace understand that it’s the fault of the gold standard? And even if the poor are upset, won’t politicians still cater to the capitalists that are contributing to their campaigns? Second, it seems like a stabilizing US could alleviated the problems of cooperation and that stability would have made it less likely that markets would bet against banks. Finally, although bad luck might have exposed the problems of the New Gold Standard in the future, it still seems like US leadership could have kept the NGS around for longer than it actually did. If the US took leadership and provided the needed liquidity, it solves Keynes’ bad luck problem of… a lack of liquidity. And I’d imagine that there was still enough gold around to keep the supply expanding for quite some time. In the words of Will Higgins, “Thoughts?”

]]>Comment on Course Discussion by Will Higginshttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-331
Thu, 29 Oct 2009 03:06:30 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-331In response to Logan’s question about the risk that the US faces if China were to start selling treasury bonds, the biggest risk is inflation getting out of control. To print money as an economic stimulus is to walk a very fine line. While the United States obviously wouldn’t be printing money on the same scale as Germany following WWI, printing any amount of money will devalue all of the currency in circulation. I would assume that the Fed has this under control, and the amount that they’re printing probably isn’t enough to cause a serious jump in the inflation rate. But add sales of Treasury bonds by China, and suddenly there are many more USD in circulation than the Fed is comfortable with, and inflation rates could easily jump much higher. Furthermore, I believe that if China were even to stop buying Treasury bonds, let alone selling them, it would cause severe inflation. I think that one of the reasons that printing money is a viable option right now is because the US still has creditors lined up and willing to buy our debt. Were this not the case, we would never be able to implement the economic stimulus plan that is currently in place without facing massive inflation. Simply put, if China were to start selling more Treasury bonds than it is buying, our economy could quickly crumble due to severe inflation.
Thoughts?
]]>Comment on Course Discussion by Chalene Pekhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-321
Thu, 29 Oct 2009 01:48:18 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-321Here is a very fundamental and simple theory of International Macroeconomics that I just re-discovered.

Why does a high inflation rate lead to a real exchange rate appreciation? How does it lead to a sharp depreciation in domestic currency?

Let me try to explain this. When prices increase in a domestic economy, two things would happen: people would start importing more because the imports would be relatively cheaper, and exports would decrease.

When the domestic price level falls, the real exchange rate will increase. This means that the domestic currency has experienced a depreciation. (With the original sum of money, you can buy less with it.)

From the screening of Niall Ferguson’s “The Ascent of Money” on Tuesday night, it got me thinking about some things.
This Chimerica (China & America) dynamic was perceived as a win-win situation for both parties. China could ride on its fabulous export-led growth sustained largely by America’s spending while American firms like Walmart could profit from low Chinese labor costs. This set into motion another reinforcing wave- China was determined to keep its export-led growth so it was willing to lend money to the US by continuing to buy her bonds. Thus the US Treasury was kept happy as her large lender- China, allowed her to keep interest rates low. As a result of this China-American interaction, there was an onset of new bank loans, derivatives and other financial assets which swept the world after 2000.
This gave the US added confidence to encourage more sub-prime loans. Thus I found it interesting that Sino-US trade in goods, services and financial assets played a role in contributing to the 2008 global recession which saw the collapse of Lehman Brothers, Bear Steins and Merril Lynch.
It made me realize that it is still better to pursue a cautionary or conservative approach towards balance of payments because tilting too much in one direction will have drastic ramifications in the long term, if not now.

Yes, I think you have price-specie-flow right in broad terms. When Hume developed the theory of PSF in the 1750s, the bulk of currency in Britain still took the form of specie. So, then it was generally just a matter of either melting the coins for export. Thus, as a practical matter, states wouldn’t need reserves in such conditions since the currency itself was composed of the material needed for export. With specie, one can avoid the domestic monetary authority entirely.

The increasing use of tokens and notes changed things. To get gold or silver at the official rate (rather than the market rate), currency had to be taken into the central bank and exchanged. There currency which was “convertible” would then be exchanged for whatever was backing it (gold, silver, foreign currency, &c.). In that case, the monetary authority would then need reserves to maintain convertibility.

One is just a quick question or clarification about the price-specie-flow model. This mechanism assumes that governments can ensure full convertibility and have sufficient reserves for doing so. Citizens in a country who want to buy exports buy gold with their domestic currency (contracting money supply) and exchange it for foreign currency for foreign goods. People abroad exchange their currency with their central banks for gold, and bring the gold to this country’s central bank, and exchange it for domestic currency. If the government has sufficiently deep reserves to satisfy all demand, eventually a strongly positive trade balance would have much of the domestic currency changed to gold, shipped abroad, which will lower prices and cause exports to increase, etc. etc. So, the price-specie flow depends upon governments have reserves of gold that are sufficiently large so that they can hold out until change in global price levels cause the trade balance to equilibrate and their gold reserves to fill out again. Is this correct?

The other is partly a reply to Logan that throws up a few confusing but interesting questions. The notion of “value” is very interesting in that it depends on which frame of reference we are using and differs accordingly. For example, we talked today about the ideal intnl monetary system that Keynes wanted that would have a powerful IMF strong-arming creditor nations with huge reserves to lending to debtor nations. In this way, nations can have autonomy to affect price levels, exchange rate instability would be minimized, and free trade would prevail, while capital controls would be in place to help control those discrepancies in reserves. The question of what rates the IMF would compel the nations to lend at, however, seems to be highly contentious, even if it was close to market rates, since depending on circumstances a supply of necessary funds can have very different valuations, as seen by the current crisis. The problem is that all carriers of value, like goods, services, assets, money, gold, have no clear objective value; the point of the free market is to assign values to all these carriers through the interaction of market forces. In any situation where no clear market exists, or the rules, context and conditions of the market situation are politically, or arbitrarily defined, or basically decided by a non-market based approach (i.e. no market exists for deciding how markets are structured, and so on and so forth – market in a more abstract sense of the term), then it is difficult to say what certain “carriers” are worth or even to decide obligations, strategies or issues of fairness, or even to get a right sense of scale or possible risks. So, with regards to the huge reserves China has from the US, the odd question is how the Chinese are keeping up the value of their holdings precisely by maintaining their demand and managing expectations.

It is perhaps dubious to use the market price, which occurs at the margins over transactions between some buyers and sellers, to value goods, though we lack any other measure. I.e., it doesn’t quite make sense to value all the rice in your mill by multiplying current market price by the units you possess, especially if you have 30% of total stock, and have other considerations to selling your stock including global stability and also the falling price you would certainly get if you were to release too much stock at once. As it were, prices are determined by a present market frame, but true “value” seems to come from a consideration of possible actions, their probabilities, their interactions, and the different frames that would therefore come about. This gets complicated because it comes down to more complex interactions between the decisions of different entities and could have drastically different values depending on how things turn. Any policy might be much more “value-enhancing” than felt by current conditions, only by considering the much worse frame it might have helped avoid, which it is difficult to ascertain considering that the event didn’t happen.

A good example of this is how we look at the lack of an upper limit for countries to accumulate reserves. If there is excess demand for a country’s goods, the country, rather than let prices rise, can increase money supply or increase domestic currency available to exchange for foreign currency, and thus increase foreign reserves. It seems to me that if we simplify our analysis and see countries not investing those reserves, then all the states really are doing is storing up “inflation” or “excess demand” (which also seems to have redistributional effects because the government accumulates vs. the people) or “purchasing power”, and the value of those reserves, in turn, depend on factors like how necessary they are in crisis situations, to maintain political stability, prices in the future, future ERs, etc, etc, in contrast to its current “visible” value by taking into account current ERs and price levels.

A bit long, got carried away.

]]>Comment on Course Discussion by James Conklinghttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-291
Wed, 28 Oct 2009 04:37:38 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-291Not surprisingly, as we turn to the contemporary international political economy, China is at the forefront. If Keynes’ chief concern for the postwar system was to rectify currency imbalances, then he would certainly would be disappointed in where we find ourselves today.

So where are we headed? The BusinessWeek article by LeVine offers one possible result; to me, however, he is misstating the issue somewhat. The Yuan is not, nor could it be, the next reserve currency. Short of some unforeseen cataclysm, no country will ever reach the relative power of America following WWII, nor will its currency reach the universality of the USD. I do not think China wants to be a global hegemon following in the footsteps of the US. Rather, to quote a professor of mine in India, China wants to be the powerhouse of a unipolar Asia in a multipolar world. It seems to want to balance against US/Western power (politically, militarily, and most importantly economically), yet it still appears to want to work within the international system, according to international norms. As LeVine reports, the Chinese central bank chief Zhou Xiaochuan as wanting to replace the dollar as the international reserve currency with a basket of currencies supervised by the IMF.

What could this mean? Firstly, this hypothesized reference basket would in some ways be a more liberal system than the one we currently have (that is, decentralized)–ironic, coming from one of the world’s most authoritarian regimes. Secondly, it is not necessarily a bad thing for the US. Eichengreen shows that the transition, which he demonstrates is already underway as of July 2005, must be gradual. The Yuan must be made convertible, the ER must float, capital controls must be liberalized, all slow processes. China will not suddenly choose to dump its US debt; we do, in a matter of speaking, own the bank. Yet, if there is an inevitable transition away from the USD as the single reserve currency, America will be forced to pursue a much higher degree of fiscal responsibility.

Lastly, not to belabor the point, this transition means an evolution in the shape of the international political economy. Global governance has, and will continue to change; so must the global trade and monetary system. It will mean a decline in the relative power of the US but if approached correctly, this relative decline does not have to be an absolute fall.

]]>Comment on Course Discussion by Logan Galloglyhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-281
Wed, 28 Oct 2009 04:28:56 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-281I actually wanted to discuss the relationship between the US and China as well; I don’t see any new posts so I’m not sure what topic we’re on but this is an article from about a week ago about the weakening American dollar:

In discussion we’ve talked several times about the difficult position of the United States, with our huge debt to China and the possibility of the dollar losing its status as reserve currency. We talked about what would happen if China suddenly decided to sell all of the bonds it’s holding in USD. However, i think it’s also important to note the implausibility of this ever happening. If China were to do that, the value of the dollar would fall dramatically and China would lose its biggest market. Also, the article talks about the Fed policy of quantitive easing, which is when interest rates are so low that they can’t lower them anymore and instead they try to stimulate the economy by printing more money. It makes lending/borrowing more attractive and both the US and UK are using this policy right now. I’m not sure about this, but it seems like if China were to sell bonds now it would just emphasize the monetary policy that the Fed is already using by putting more USD into circulation. So what threat does the US face from its debt to China? This is a really pertinent topic for what we’re discussing in class and it’s in the news a lot so i would be interested to hear what you guys think.

]]>Comment on Course Discussion by Nick Alexanderhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-271
Tue, 27 Oct 2009 15:18:23 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-271An interesting article that is relevant to our ongoing discussion on debtor and creditor countries; it focuses particularly on the American negotiating position vis-à-vis China:

]]>Comment on Course Discussion by Andrewhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-261
Fri, 02 Oct 2009 00:45:56 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-261FYI anyone who missed the Williamson lecture and is interested, I think the above article makes most of the major points he made in the lecture
]]>Comment on Course Discussion by Andrewhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-251
Thu, 01 Oct 2009 19:39:22 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-251There was some discussion in the 12:30 section as to the effect of free trade and the industrialization of Europe on the terms of trade for the poor periphery. I also found it remarkable that despite the deindustrializing and volatility caused by free trade, Williamson thought it was good for the poor-periphery. I found another article by Williamson, though I don’t think it’s the one he just sent in for publication, on the subject of terms of trade and the poor periphery.

The paper says free trade and the industrialization of Europe caused improving terms of trade for the poor periphery. If I understand it, the following is why. First of all, the terms of trade always fall between the opportunity costs of the two countries for producing particular goods. Market forces determine where in the range it falls at any time. Terms of trade change when the price of a given quantity of exports changes relative to a given quantity of imports relative to the base period. A shift within the previously defined range would cause the TOT to change, but the opportunity costs of goods may change over time causing the whole range to shift and this is the key variable over long time periods in determining TOT. The rapid productivity growth of Europe in manufacturing led to a decline in the price of their products on the international market (supply and demand). Meanwhile, it created per capita GDP growth which drove demand for imports of luxury goods like coffee, tea, sugar from the periphery driving up the prices of those goods (supply and demand again). So free trade and the industrialization of Europe caused an improvement in the terms of trade for the poor periphery by giving access to markets with an increasing demand for periphery exports, and by causing the price of manufactured goods to fall.

This is why Williamson said in his lecture something along the lines of: “While the rapid industrialization of the core may have caused some deindustrialization in the periphery they were forced to SHARE their productivity gains in the form of falling terms of trade for the core, and rising terms of trade for the periphery.”

Industrialization caused the opportunity costs of primary products in the core to rise. This caused the range of acceptable terms of trade for the core to expand towards terms they previously would not have accepted. Rising opportunity cost of primary products for core nations + increased wealth –> demand for luxury imports + falling transportation costs (improves TOT for all) = dramatically improved TOT for the periphery.

Williamson, as he did in his lecture, then uses the terms of trade boom as a predictive measure of deindustrialization and finds that improved TOT correlates with deindustrialization. There is also the deleterious effect of volatile TOT on growth.

I found it remarkable after all this that Williamson still thought free trade was good for the poor periphery. When I spoke to him about it after the lecture he said the real income gains and improved TOT outweighed the cost of deindustrialization. He suggested that the real income gains be put towards education and infrastructure. I certainly can believe this in the case of a small-medium size country which could not possibly efficiently produce a wide range of products. This would include all African nations, Latin America, the ME, and SE Asia. For those countries the real income gains caused by free trade and specialization are going to far outweigh anything else. But I wonder if the U.S., China, and India might be possible exceptions considering their large domestic markets.

There’s also the possibility of large regional trading blocs by countries with similar levels of industrialization so as to prevent deindustrialization. This would allow for some specialization based on comparative advantage and resulting real income growth, but it also wouldn’t cause total deindustrialization. But given the dependency of most of these small nations on primary product exports to core nations it might be too late anyways. Thoughts?

]]>Comment on Course Discussion by Andrew Piccirillohttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-241
Wed, 30 Sep 2009 03:02:11 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-241Nick, that was much more eloquently put and well supported than in my post 21. I think your quotes of G&I 95 and Krasner 22 (multiple large states leads to closed system) are extremely important to this discussion. It is important to remember that the U.S. still benefits economically from free trade and it is a political advantage in our negotiations with other countries as well (although this political advantage has declined slightly).

In addition I would point out G&I 113: “British power peaked in the 1870s, and in the decades that followed European countries and the United States moved away from free trade. The correlation was not tight or absolute: there was some revival of trade in the decades before WWI and the UK itself remained committed to open trade, …. But its capacities to manage the system and ensure openness had diminished by the turn of the century and the system ultimately reflected this shift.”

The UK still had an interest in free trade economically and politically after the 1870s.. but free trade declined because the U.S. and Europe were less willing to subordinate themselves in dependent relationships with the UK. Likewise, the U.S. still benefits from free trade agreements economically (GROWTH) and politically (making other countries dependent on us) but our ability to convince other countries into these relationships may decline. As I said in my post, at least according to Krasner and HST, the threat to free trade comes from states which may not be willing to submit to our politics anymore. Thus far openness has not declined, and if the institutional effects discussed by Keohane are correct, then hopefully it never will.

While I agree with nearly everything you’ve said, I’m not sure I agree with tying the possibility of healthcare legislation to the issue of free trade. Or did you mean universal healthcare will limit American growth and hegemony and therefore affect the trade regime? If that’s the case.. that is a whole other can of worms, and I’m not sure I agree with you. I know for a fact many here will take issue, and so I don’t think you can just state it as a fact without delving into the reasons and derailing the discussion 🙂

]]>Comment on Course Discussion by Nick Alexanderhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-231
Tue, 29 Sep 2009 05:44:11 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-231For better or worse, I’ve decided to wade into the melee regarding the economic implications of waning American hegemony; to me this is not only the most interesting topic of discussion, but it allows us to tie in several relevant readings from the course.

To begin with, there is little doubt that in recent years we have witnessed what Fareed Zakaria has called “the rise of the rest”, wherein the economic ascendancy of China, India, and Brazil, among others, have borne a considerable impact upon power distribution in our world. In short, Jason is correct to point out that the world appears to be undertaking a transition from unipolarity to multipolarity in the realm of economic leverage.

However, I have to disagree with the notion that American hegemony might be ‘frozen’ in place through the active closure of markets. Hegemony exists within a context of interstate competition; the situation of complete ‘lockdown’ described by Jason isolates America from global interaction, utterly obliterating the very economic channels through which it was previously able to exercise its ‘hegemonic’ leverage. American policymakers cannot simply wish away the changing global context; they are well aware that American hegemony thrived in accordance with a particular systemic arrangement, one that was founded upon openness and economic interdependence.

Rather than simply abandoning the global stage, American policymakers will have to adapt to a world of economic multipolarity; this may result in the closure of SOME markets in favor of protectionism, but hardly ALL. It can be taken as a general rule of thumb that “states want it both ways: they want to benefit from open markets, and indeed to participate in helping to create them, but they also want to avoid the losses” (Greico and Ikenberry, 95). With this in mind, it can be argued that as our world swings towards economic multipolarity, we can anticipate (and are perhaps already witnessing) an increase in the volume of protectionist measures. After all, as observed by Krasner, “let us consider a system composed of a few very large, but unequally developed states. Such a distribution of potential economic power is likely to lead to a closed structure” (Krasner, 22).

That being said, scholars like Joseph Nye have reminded us that power and hegemony are concepts riddled with nuance. Although America’s economic hegemony may be decreasing, it remains an undisputed military hegemon, and American soft power is also unrivalled. While this may change with time, it also may not – it is unclear what hegemon will emerge in America’s stead. In other words, the world may be drifting towards economic multipolarity, but if America can retain its power in other important spheres, while mitigating its economic decline, it is likely to remain the global leader in the near future.

Moreover, it is worth noting that although American economic hegemony may be on the wane – the game is not up: “by maintaining its technological lead and continually developing new industries… a very large state [can] escape the consequences of an entirely open economic system” (Krasner, 22). The American capacity for innovation and rebirth is well known. However, a hegemon must divert a significant portion of its resources towards sustaining its global influence. For this reason, as stated by Kindleberger, “the leading state must be able to resist domestic pressures to look out for its citizens’ own interests” (Greico and Ikenberry, 112). It remains a question as to whether or not the American government will be able to avoid falling into the trap of domestic over-expenditure on welfare programs, particularly with the possibility of universal healthcare on the horizon. In the same breath, the recent public backlash against the ‘greed’ of Wall St must be channeled towards productive ends, rather than permitting misdirected regulation to stifle innovation (ie. Tobin taxes).

]]>Comment on Course Discussion by Sam Michelmanhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-221
Tue, 29 Sep 2009 01:28:09 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-221I found an interesting and timely article in the New York Times today that I thought tied in nicely to our discussion of America’s waning economic power:

]]>Comment on Course Discussion by James Conklinghttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-211
Mon, 28 Sep 2009 10:42:24 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-211I have been doing some (moderately) fruitful thinking on the relationship between currency reserves, trans-national markets, and ER. The case of Mexico is particularly illustrative. In the early 1990s, liberalization of trade and capital flows opened the country to the outside world; the potential for foreign investment was now huge, increasing something like 400%. American investors found they could borrow money in the US for around 4% and turn it around in Mexico for a rates of return running between 8 and 20%. This boom has all the ingredients for the logical bust. There were two precipitating factors: firstly, the social unrest caused by the rapid liberalization policies fomented rebellion in Chiapas, scaring off investors, and secondly interest rates increased in the US. Herd mentality breaks out and it becomes a race to the exit. As Mexicans and Americans alike sold off their pesos, the Mexican government had two options: allow the value of the peso to drop or buy up the excess pesos with dollar reserves. When reserves went dry, they were forced to abandon the ER peg and the economy crashed.

What makes this story particularly interesting, however, is the fact of lessons not learned. American citizens had a huge vested interest in their Mexican investments, and in order to not lose all their holdings, President Clinton committed some $20 billion as part of a larger $52 billion aid package. While it had the intended recitative effect, it dulled investors to an important fact: capital investment is a dangerous game and there will not always be some benevolent force to bail you out. A precedent for moral hazard is set and the game is played again only three years later, this time for much higher stakes, with the 1997 economic crash.

A second important point which i will briefly make is the relationship between trade liberalization and social stability. There were many factors leading to the uprisings in Chiapas, with trade liberalization being central. In the simplest of models, here is an example of trade liberalization undermining the benefits of capital flow liberalization.

]]>Comment on Course Discussion by Andrewhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-201
Mon, 28 Sep 2009 08:18:03 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-201I have to disagree with the statements of Jason, Will and Chalene, that HST tells us the U.S. should close certain or all markets because they are no longer profitable or to maintain its hegemonic status. HST predicts that a hegemon will have a reduced interest in openness not because of a declining or negative economic benefit, but because of a declining political benefit. A hegemon has an interest in openness because it gives it political power over smaller states. As the U.S. loses its hegemonic status, openness has at least as great an economic benefit to the U.S. as it did before, but the political benefits of openness are less. On the whole however, the U.S. should still want free trade as there are modest economic benefits (as always) and the threat of closure is not so great (the U.S. is a large state with a large domestic market). Openness is not a political threat to the U.S. (and probably still enhances our political power in our negotiations with small-medium size states) and it is always at least modestly economically advantageous.

Closing markets while you are still the hegemon might maintain your hegemonic status, but you would have a great loss of economic benefits and of political power. You might hurt other’s economies more than your own, but you would become dramatically poorer in absolute terms completely ruining your own economy. Having already exercised your threat of closure, you no longer have an economic threat to use as leverage over smaller states. HST just says that as you lose your hegemonic status, you have a reduced political benefit of openness, although modest economic benefits remain.

The real threat of closure as the hegemon (the U.S) declines is from states which had previously submitted to the political authority of the U.S. in exchange for the economic benefits of free trade may no longer be willing to do so. We may also decide the political costs of openness are too high. But the economic benefit of free trade is no less than it was in 1950 for the U.S. The economic benefit of free trade is GREATER than ever before, as trade is a larger share of GDP than ever before. This is the standard of economic benefit Krasner uses.

]]>Comment on Course Discussion by Jesse Gubbhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-191
Mon, 28 Sep 2009 07:48:41 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-191Jason, I appreciate your explication of the incentives facing a waning hegemon in terms of closing markets and the accompanying policy difficulties. A few other posts have added to the theory as well. It appears to me, however, that we’re creating a theory in which we have a set of assumptions for what a waning hegemon should do (close markets) and a number of caveats for why we observe something else (continued opening of markets). The resurgence of protectionism brought on by the financial crisis seems to have renewed interest in systemic theories dealing with waning hegemons, but in sum protectionism is not what we have observed since US relative power began to decline, which makes me question our continued interest in the theory.

Even when hegemonic stability theory seems to hold true, it may be that we have one thing operating under the guise of another or at least in concert with it. Schonhardt-Bailey suggests that this is possible, with Peelites pushed by the changing interests of their constituents to support repeal of the Corn Laws but enable to support it until they developed the ideas (preserving the territorial constitution) to cover for it. Peelites were unwilling to abandon their Burkian model of a Member of Parliament as trustee rather than delegate despite their desire to support their constituents. Ideas mattered, but as a cover for interests. One studying ideas only would not understand the cause behind the idea of repeal to defend the territorial constitution.

The current round of protectionism seems fuelled mostly by domestic pressure to fight recession with support of domestic production. Obama talks about green energy and infrastructure jobs that can’t be outsourced, not because people are losing jobs to China, which has arguably been happening in some sectors for a long time, but because people are losing jobs, period, and this is a way of showing that the money spent will directly benefit them. Policy makers are spending heavily to get those jobs back and are concerned that the money will be directed to the right places (consider the backlash against A.I.G. bonuses), ideally to their constituents.

In systemic theory, international regimes are proposed as a substitute for hegemony, but they seem to function to make things “stickier” or enhance the lag already posited. Regimes are a placeholder. Keohane’s book is After Hegemony, not before or instead. With the G-20 summit, however, we see a waning hegemon actively promoting an institution, spearheading a new commitment to economic cooperation and permanently expanding the G-7 to 20 for further negotiations (see http://dealbook.blogs.nytimes.com/2009/09/25/group-of-20-agrees-on-far-tighter-financial-rules/). This last point is interesting because the US seems willing to limit its power in an international institution by including more voices, with disparate interests. Is the US motivated by maintaining relative power as a waning hegemon or is it interested in maintaining its leadership role in a changing world, despite its waning power? In all, it seems that less systemic theories are needed to explain the complicated world we observe. Ideas and interests, often conflated as Keynes argues, play too large a role to ignore.

A further consideration, it may be that the active participation of a hegemon is important for the functioning of international regimes. China, predicted at some point this century to surpass the size of the US economy, presents an alternative development model for the world. As China becomes more powerful, it is unclear whether it will seek an expanded role in current international institutions such as the G-20 and IMF or establish a unique ideological and geographical sphere of influence. If China, or any other rising state, does not wish to assume leadership in these regimes, they will be weakened. Multipolarity may lesson the importance of institutions, destroying the notion of an “international community.” This is a key prediction of the National Intelligence Council (Global Trends 2025), suggesting that hegemony plays an underlying role in international cooperation.

]]>Comment on Course Discussion by Xuehttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-181
Mon, 28 Sep 2009 06:23:43 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-181Continuing Shenique’s discussion on the relations between politics and economics, I would like to summarize my own stance on the causal relationship between the two subjects.
In the first week, we started off with readings on “what is IPE? which one precedes the other? ” At first I was strongly convinced by institutionalism that emphasized on the role of politics to organize and shape markets. However, a sharp turn came around last week when we studied exchange rate market. The theory of balance of payments clearly demonstrated the “real-world” constraints that economics poses on politics, at least in the arena of foreign economic policy. I was taken by surprise to rediscover that economics actually possess such influential actor that shapes policy making. At the same time, Rogowski’s piece further helped to conceptualize the feedback loop between economics and politics.The trade policy creates winners and losers on the market, whose interests feed back to the system to create political cleavages. A domestic-politics/interest-group explanation would only be helpful to prove the latter half, but it is clear that we cannot neglect the actual economic benefit and cost involved in the first half. As a student of IPE, I am reminded again that we can no longer look at the world solely from a political scientist’s or economist’s point of view.

For example, take the discussion on hegemony and its potential policy on free trade (debated by Jason and others above). As many of my classmates have already pointed out, the hegemon can choose to behave as if maintaining its top political power is the sole purpose of existence; consequently closing the world economy. However, if we take a look at the economic cost also incurred on the domestic market of the hegemon, we begin to understand the plausibility of this argument.

]]>Comment on Course Discussion by Spencer Wrighthttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-171
Mon, 28 Sep 2009 05:57:43 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-171I’d also like to throw my two cents into the declining hegemon debate. And although I think the argument is interesting, and I value the attempt to do what Krasner did not, I ultimately disagree with the assumption that declining hegemons would attempt to close world markets.

Krasner points out a few reasons why hegemons look to open markets (and we can only presume that the reversal of these trends makes hegemons want to close markets). The first argument is that hegemons increase their aggregate national income. In a world where the state is still the great power, even if it faces relative decline, I have no reason to believe this wouldn’t hold true. Second, hegemons get political advantages over smaller states. But the political advantages still exist in a world where a hegemon is declining, because although with the decline the political sway decreases in effectiveness, the advantage overall still exists so long as a state maintains its power.

Finally, Krasner’s makes the argument that the rate of growth increases during a hegemons rise to power. Now, this is probably the closest argument we have that could be construed as a reason why a declining hegemon would want to close markets. But I’m unconvinced for a three reasons.

First, the rate of growth relative to other countries is still positive for a declining hegemon, it’s just not increasing at an increasing rate (it helps to think of a state’s hegemony like a bell curve…) I think this also helps explain the lag the Krasner uses to prove his model. So while from 1945-1960 the US was increasing its relative power at an increasing rate, from 1960-1990 (2000? 1980? I dunno) it was still increasing its relative power overall, but at a decreasing rate. And then now we’re trying to restrict trade with China because free trade is actually decreasing our relative power.

Second, even at the point where our relative power is decreasing because of the open economy, we don’t necessarily want to close the economy to all states, just states that are rivaling us. My reason for this is that while small states might gain a relative advantage, we can use the absolute gains to keep pace with rival states. So while open trade with costa rica, canada, etc is still valuable, we’re trying to specifically limit trade with china.

Third, even if a declining hegemony wanted to close the economy, how does a state go about that? While a hegemon can become protectionist, it is still in the interest of smaller states to maintain free trade with other small once they’ve paid the transition costs.

Part of my paper is going to be on this topic, so any objections, responses, etc would be appreciated. email me at wwright@middlebury.edu

In regards to our ongoing conversations regarding the influence of economics on politics and vice versa, I think this debate begins as early as our discussions of Locke and Smith. Smith believed any type of government intervention into a market economy preserved and influenced inequality; therefore the role of government should be limited to preservation of equality of opportunity. This means governments should set their focus on the creation of infrastructure and protection of the lands in which they govern. Locke however takes the stance that governments should be there to prevent market failures (something Smith would never endorse). Politics and economics are so closely intertwined, that it’s hard to see what came first (chicken or the egg) and what is most important when it comes to policy. The Corn Law readings demonstrated the ways that each institution keeps the other in check. I think economics by itself is relatively cut-throat and “Smithian” in theory, while politics can be (sometimes and slightly) more egalitarian. I liked Schonhardt-Bailey’s description of the supply side and the demand side to political economy. I think this picture provided a sense of the give and take that occurs daily regarding policy decisions. Locke and Smith debated whether one could exist without the other, and truthfully I don’t think they could, especially not for long.

]]>Comment on Course Discussion by Colin Gibsonhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-141
Mon, 28 Sep 2009 03:26:58 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-141I first found out about the US and China’s latest spat in depth from last week’s Economist, whose cover story was devoted to the developing trade dispute, and contained several other articles on the subject, including one alleging “creeping protectionism,” since President Obama’s decision in favour of the United Steelworkers sets a dangerous precedent for other groups harmed by cheap Chinese imports. At the same time, the President had rather little choice at the time, and most likely felt his hands tied politically in the matter. The President indeed delayed his decision on the Chinese tyre complaint until the eleventh hour. Having received the complaint in April, the law gave him until 17 September to reach a decision. Opinion about the actual effect of this new duties is also mixed, ranging from slight (the Economist) to severe (The Wall Street Journal). Given the range of motives and impacts ascribed to this situation, it is difficult at best to determine the possible impact on the international trade regime of this decision. While the US was within its rights under the terms of China’s accession to the WTO, the geopolitical ramifications of any sign of protectionism are usually severe. With comparisons to the Smoot-Hawley Tariff being bandied about, the US’s role in any application of hegemonic stability theory to our current times. This outbreak of protectionist sentiment is fiercely denied a such within the administration, but the closure of markets is a sign, along with the other protectionist measures (especially against China) seen in recent years of a hegemon in its twilight. And speaking of closing markets, the headline of tomorrow’s Wall Street Journal Europe is highly relevant: U.K. Reviews Foreign Ownership of Firms. In light of the dispute over the acquisition of Cadbury by Kraft, the world may be entering a new era of protectionism. Too little data to say much either way in the current moment.
]]>Comment on Course Discussion by Chalene Pekhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-131
Mon, 28 Sep 2009 01:34:22 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-131I think that the American response to the current economic downturn can be explained in part by the hegemonic theory and in part by fear of trade retaliation from other countries. The latter is probably not a theory but a reason that would hold the US back from closing too many markets.

As Jason already mentioned, the hegemonic theory can be used to explain why the US would want to close certain markets, like the tyre market, given that they are no longer profitable to be kept open. However, in response to Logan’s question of whether closing markets to help the US domestically or opening them to help the international economy would be the right strategy for the US, I doubt that the US would close some markets because of a greater fear of trade retaliation from other countries.

I am inclined to believe that a fear of trade retaliation might cause the US to decide to keep some markets open even if hegemonic theory predicts that the US would be better off closing them.

What do you all think?

]]>Comment on Course Discussion by Sam Michelmanhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-121
Mon, 28 Sep 2009 01:01:39 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-121So, Tyler’s post interested me a great deal, and I found a more current article published today by the Financial Times which can be found here:http://www.ft.com/cms/s/0/e7df635c-ab7e-11de-9be4-00144feabdc0.html?nclick_check=1
Tyler, you mentioned in your post that you think this bilateral trade dispute could be a harbinger of an increasingly protectionist global economy as relative American economic power declines. I think this trade tension between China and the US is indicative of something else. Keohane argues in his book that even in the absence of a hegemon, the global economy can flourish through international regimes. I think what we’re seeing is just that. This article demonstrates that both sides are operating through the international institutions set up during the post-WWII US hegemonic era to maximize their interests rather than abandoning the international regimes in favor of unilateral moves that could have lasting consequences.
]]>Comment on Course Discussion by Tyler Gibsonhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-111
Mon, 28 Sep 2009 00:38:45 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-111oh wow, did not see those other posts….sorry for completely changing the subject! I hope that was ok…?
]]>Comment on Course Discussion by Tyler Gibsonhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-101
Mon, 28 Sep 2009 00:37:11 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-101Here’s a slightly old article on the current China US tire trade dispute that I found interesting.

Not only does the article raise the issue of the importance of domestic interests in foreign economic policy, but it also raises questions about the continuing openness of the international economy and that relationship with international regimes.

This could turn out to be the first sign of the eventual closing of the international economy after hegemony. China and the US could be headed towards a trade war over tires and chicken, and that could expand to other commodities if it is not settled. Indeed, it would appear as if international regimes accounted for the “stickiness” or lag time between the US’s demise as the hegemon and the closing of the international economy. And while the WTO could conceivably work this dispute out, it’s failure to do so would indicate the power of the 2008 economic crisis as a catalyst for the closing of the international economy. Just some thoughts. I hope that made sense.

Also, here is that video i mentioned two weeks ago about social networking

]]>Comment on Course Discussion by Will Higginshttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-91
Sun, 27 Sep 2009 23:57:18 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-91Jason,
I don’t have time to address all of the important points in your post, but it got me thinking. Keep in mind that this is all just my speculation on one of the points you brought up; I really can’t substantiate anything I’ve written here.
As you said yourself, closing off markets to maintain hegemony only works when the hegemon still has a big enough “lead” over other countries that the international economy can’t function without it. Essentially, it only works when other countries are completely dependent on the hegemon. Any country in this position would need to be looking VERY far down the line to see this and close the markets in time, and, as Krasner points out in his article, there tends to be a lag between the point when states begin to lose their relative power and the point when they realize it. I don’t know that any country could time the market closure correctly. Even if it did, it couldn’t hold on to power forever. Eventually other states will establish their own markets elsewhere, and sooner or later, the declining hegemon, most likely isolated by the countries that it closed off, will suffer because of it. It might be an effective short-run approach if the timing is perfect, but in the long run, I think that the ill will it would engender among other countries makes this a poor strategy.
Of course, this is assuming that the hegemon will go to all lengths to screw its competitors and hold onto its power. This is unlikely to be the case in the real world, nor will this question be as black and white as it is in theory; the real world might yield quite different results.
]]>Comment on Course Discussion by Fernando Aragonhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-81
Sun, 27 Sep 2009 23:29:21 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-81I think the most interesting part of the course so far has been to be able to see how economic variables are responsible for political outcomes. Specially to see how international regimes are created with the idea of establishing liberal trade policies around the globe. To ease economic relations and reduce transaction costs among sovereign states in the world market, but also to ensure the compliance of other states with the hegemon’s most beneficial economic strategy vis-à-vis other states in the international arena.
I guess one of my problems with institutions like the IMF or the World Bank is that they are responsible for the spread of false assumptions about the best way to bring growth and development to the Third World. I understand how those institutions are necessary among developed nations to foster trade relations and promote healthy commercial ties; however, their role in regions like Latin America has been slightly counterproductive. For years these regimes promoted liberal trade policies in the region as a necessary condition to achieve growth and development, when in fact those countries that integrated to the world economy most rapidly were not necessarily those with the most pro trade policies i.e. like Taiwan, Vietnam, South Korea.
These regimes’ economic rhetoric in the region has had a very negative effect on some of the members of our political elite, because repeated assertions about the benefits o global trade do not carry direct implications about how trade policy should be conducted in developing countries. Our leaders belief now that the market is the solution to everything, even now, when in the US and Europe it is clear that you need an effective and strong state for the market to operate efficiently.
Although the benefits of global trade are uncontested, I also believe that it is necessary to give the international regimes that embrace those ideals the necessary legitimacy to promote them. I think these international regimes are important in reminding nations about the importance of free trade, but they should also be more transparent about the advantages and disadvantages of these trade schemes. Otherwise free trade could be harmful for the long-term industrial development and political stability of land and labor abundant economies.
]]>Comment on Course Discussion by Logan Galloglyhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-71
Sun, 27 Sep 2009 23:28:57 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-71Hi guys,
I wanted to respond to Jason’s post about hegemons. He said that a declining hegemon would theoretically want to “end all agreements that no longer benefit it” but even if other countries are gaining relatively more from trade agreements, the declining hegemon still benefits. It makes sense that a declining hegemon needs to close markets to keep its position, but it seems like no country should want to do that because while it would remain the hegemon, it would be leader of a world system in which all countries (including itself) are worse off. Unless being at the top is literally all you care about, you would be unlikely to take this kind of action.

On the other hand, this is without taking into account the idea of relative power discussed in Grieco and Ikenberry Ch 4. In the chapter, they talk about a recent study of American attitudes toward Japan: “a majority of the Americans polled in a survey responded that they would rather gain less overall if they could nonetheless gain more than the Japanese” (104). This idea seems self-destructive, especially for a declining hegemon like the US that needs to worry less about its security and more about its economic health. However, it seems to be the dominant philosophy. So according to this, a declining hegemon should close markets to preserve its position.

With the current economic situation it will be interesting to see which of the opposing policies will win out – closing markets to help the US domestically or opening them to help the international economy.

]]>Comment on Course Discussion by Cher Griffithhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-61
Sun, 27 Sep 2009 20:09:22 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-61I think Jason has a point with his post. But I think the bit about ‘time’ is always hard to gauge – are hegemons effective in gauging when to say ‘when’? Or will they continue to trade their relative hegemony for increased absolute gains, until perhaps it is too late?

My own comment also relates to current readings int he news on the G20, and Cohen’s “The Triad and the Unholy Trinity.”

In this article, Chen points to the “Ebb and Flow” in the collective commitment of nations as that which has diminished the credibility and effectiveness of international monetary co-operation. “Episodic” patterns are predictable and unavoidable as sovereign states relate in an anarchic system. In short, for optimum benefits to e achieved (monetary or otherwise) it is necessary for all involved parties to work in concert.
Cohen hinges his piece on the incompatibility of exchange-rate stability, capital mobility and monetary policy autonomy (the “Unholy Trinity”), and concludes that in practice, there is a “direct off between exchange-rate stability and policy autonomy.”
I found such a conclusion directly reinforced in the supplementary readings, as the Financial Times reports that “Berlin has Berlin has consistently rejected any agreement that would constrain its margin of manoeuvre in economic policy and said it would only agree on a non-binding monitoring mechanism for G20 members to assess the impact of its policies.” Cohen cites several examples in international history to highlight such “Ebbs and Flows” in commitment to policy, and it may be a while before our reality closer approximates the theory.

This is an e-mail that I sent to Prof. Morrison and figured I’d share with the rest of you in case you had any thoughts:

_______
If you add time and expectations into the mix about opening markets and relative power then:

Would it follow that a declining hegemony (who is apparently growing less rapidly than the other countries, hence its decline) should actively CLOSE markets, in effect causing a standstill in the world economy, stopping relative gains from trade to other countries (which is loses on), in attempt to freeze the world with it (the hegemon) at the top?

I realize that had a lot of modifiers, but the central thought being a declining hegemon closes the world economy to prevent other countries to rise to its level of power.

I’m not saying that that occurs empirically, but would that fit into hegemonic theory?

Removing the agreements reflects an acknowledgment that from the hegemon that it will no longer continue in that role, but is a better option than falsely believing it is still in power when it’s actually losing group.

I am (if anything academic) an economist, so I’m thinking in terms of marginal benefit and cost. Ideally, the hegemon would open up economies up to the point where the agreements were no longer in its benefit. Eventually (in time), however, the tables turn (all good things come to an end), and the hegemon should end all the agreements that no longer benefit it. It should still have the power to do so. This action will stall the growth of its competitors. Although that may not prevent the hegemon’s expected demise, it will at least stall the gains the other country would make. And that is why declining hegemony is supposed to coincide with market closure.

Said another way, while the hegemon is in power, it should do everything it can to prevent others from rising to its level. At first this meant subjecting other countries to trade policies that helped the hegemon, but eventually, if/when the trade policies have the reverse effect, it closes trade to make it impossible for the other countries to gain from.

Of course, if the hegemon waits too long to start closure (or if there are “regional hegemons”/close seconds), the world economy will be able to function without its leadership, and closing the economy will just result in hurting itself by excluding itself from an otherwise thriving economy. I guess that would be where the US is. Even though we may be on the decline, it’s too late to try to reverse the opening of markets (the EU and China would just go around us).
______

Reading about the G20 Summit and the United States attempting to close some markets (like tires for example) may give some possible credibility to this. Although there are other factors (given the widespread belief in free trade it is hard to contradict it without losing face), it seems that this might be what the US should want, even if we can’t say we do.

Let me know what you think.

]]>Comment on Course Discussion by Andrew Chonghttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-41
Sun, 27 Sep 2009 17:34:02 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-41Some ideas I’m working out about balance of payments and exchange rates. Not sure how accurate they are.

1) A country usually doesn’t know what its balance of payments exactly is. In a country with free floating exchange rates, they can use the behavior of ER and the relative appreciation or depreciation of their currency to estimate how much “goods and services” they owe abroad, how much of its currency is out there. This currency abroad exerts pressure on exchange rate movements. To appreciate how this is not a sure guide, imagine a rich grandmother who buys 10 billion USD and keeps it under her mattress. ERs will not be affected by that supply until she remembers it. While improbable, different countries and entities keep USD for different reasons. Day to day movements may not reflect these supplies.

2) The government can also use its present BOP to capture the gap between inflow and outflow of currency. This is pretty complicated to me because in a free floating system, the values of exports, imports, transfers, etc, are constantly changing. It doesn’t seem that governments make a note of the amount needed to balance the account and then make up the difference. Rather, governments, usually by paying attention to the ER, can sell foreign reserves for USD to prop up the value of their currency, or expand the money supply in the country (thereby increasing supply of USD). It seems that governments can directly sell USD for foreign exchange as well. And there seems to be mechanisms whereby governments can increase the supply of USD but constrain inflation within the country, influencing only foreign exchange markets – not very clear about what these are or how they operate.

]]>Comment on Course Discussion by Nat Nelsonhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-31
Sun, 27 Sep 2009 17:12:14 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-31I found the analyses of the repeal of the Corn Laws in Great Britain particularly relevant to the ongoing debate regarding Health Care Reform in the US. The three I’s mode of analysis used to assess the political and economic results of England in 1846 similarly offers an alternative way to methodically evaluate what seems to be an issue dominated by partisan warfare in Congress. Vested interest groups (read: the Health Insurance Industry) have devoted considerable amounts of capital to lobby Congress and appeal to the general public (constituency groups to which Congressmen and women are beholden). This move makes logical sense from their standpoint of economic entities motivated by the bottom line, and is not entirely different from the efforts of the landed aristocracy (or even the Anti-Corn Law League, for that matter) in nineteenth century England. Ideology certainly plays a strong role in the debate, as some people promote Universal Health Care as the morally right policy, while others debate the merits and fallacies of capitalism vs. socialism economic models. Our own institutions (specifically Congress, though Obama’s decision to route reform through the legislative branch should also be noted as significant) have had a considerable impact on the present debate beyond partisan bickering, as the two Houses have each attempted to produce different versions of a reform bill with varying degrees of consensus among the myriad committees of which each House is composed. Political fault lines in Congress and in the national media are irrefutably important, though far from the only or even primary factor in the debate, impacted by interests, ideas, and the nature of our governing institutions.
]]>Comment on Course Discussion by Alhaji Jallohhttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-21
Sat, 26 Sep 2009 00:41:32 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-21A call to “the Invisible College” B. Cohen
I’m choosing to respond to Cohen simply because I did not only enjoy his work on the “intellectual history of IPE” but I was also moved by his sense of humor. It’s a very beautifully written piece—sound and honest. He made me appreciate the fact that I’m studying IPE at this defining moment in history; a time when economics and politics are so intertwined (like a spider web) that one can never escape their impacts or implications…well, except, maybe when one is dead. If you think that you are not affected by “the nexus of politics and economics” then you must be living on another planet. As Aristotle once put it, “man is by nature a political animal.” In a nutshell, as long as you MAKE DECISION (about the acquisition, application and/or distribution of power and material well being &c) then I’m afraid you are a political-economist animal, and that means you are in for the ride…
Cohen meticulously starts by distinguishing IPE from ipe. The former (which is “the connections between economics and politics beyond the confines of a single state”) is what we are concerned with. He provides very solid points as to why we should care about the intellectual history of IPE, and they are (in his words):
1. Diversity ( “IPE is hardly a monolith–it’s bridges are many and varied”)
2. Intellectual entrepreneurs ( that include “historians, political scientists and economists”)
3. Agency and contingency (“indispensable role of individual action” and “the unavoidable influence of chance”)
These points above are also practically important because they involve (in his words):
a. Inherent allure of ideas (since ideas and events are forever interacting and evolving)
b. Human quality (real people in real time)

Not much time to elaborate on all these profound points but they definitely do constitute an intellectual discipline…
Hmm, I wonder what other intellectual field of study is as brand new and relevant. I think this “Godfather of the monetary mafia” deserves another title. Don’t you think so? 🙂
Finally, Cohen states that “the intended audience for (his) book is first and foremost the invisible college”…So IPE majors out there, I guess that’s your call! isn’t it? 🙂

]]>Comment on Course Discussion by Andrew Piccirillohttp://sites.middlebury.edu/ipefall09/discussion/course-discussion/comment-page-1/#comment-2
Sat, 12 Sep 2009 20:06:38 +0000http://sites.middlebury.edu/ipespring09/?page_id=29#comment-2A big decision this week by Obama on trade policy that I thought was relevant to the Smith reading.

I thought it was interesting that this complaint and most opposition in general today towards free trade comes from unions, while in Smith’s time it came from the manufacturers (the tire industry didn’t join the trade complaint).